Exhibit 13

ANNUAL REPORT

OF THE TRUSTEES OF

MESABI TRUST

For The Year Ended January 31, 2018

ADDRESS

Mesabi Trust

c/o Deutsche Bank Trust Company Americas

Trust & Agency Services

60 Wall Street, 16th Floor

New York, NY 10005

(904) 271-2520 (telephone)

www.mesabi-trust.com

REGISTRAR AND TRANSFER AGENT

Deutsche Bank Trust Company Americas

LEGAL COUNSEL

Fox Rothschild LLP

REGISTRANT INFORMATION

Mesabi Trust maintains a website that provides access to its annual, quarterly, and other reports it files with the Securities and Exchange Commission.  Such reports can be accessed at www.mesabi-trust.com.  Mesabi Trust will provide, upon the written request of any Unitholder addressed to the Trustees at the above address and without charge to such Unitholder, (i) a paper copy of Mesabi Trust’s Annual Report on Form 10-K for the fiscal year ended January 31, 2018  (“Mesabi’s Annual Report”) as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, and (ii) the Trustees Code of Ethics.

Special Note Regarding Forward-Looking Statements

Certain statements contained in this document are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  All such forward-looking statements, including those statements estimating calendar year 2017 production or shipments, are based on input from the lessee/operator (and its parent corporation) of the mine located on the lands owned and held in trust for the benefit of the holders of units of beneficial interest of Mesabi Trust.  These statements may be identified by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast” and other similar words.  Such forward-looking statements are inherently subject to known and unknown risks and uncertainties.  Actual results and future developments could differ materially from the results or developments expressed in or implied by these forward-looking statements.  Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to, volatility of iron ore and steel prices, market supply and demand, regulation or government action, litigation and uncertainties about estimates of reserves, and those described under the caption “Risk Factors” in this annual report.  Mesabi Trust undertakes no obligation 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.

OVERVIEW

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, 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 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”).

A pass-through trust with certificates of beneficial interest in the trust traded on the New York Stock Exchange

Pursuant to a ruling from the Internal Revenue Service, which ruling was based on the terms of the Agreement of Trust including the prohibition against conducting any business, the Trust is not taxable as a corporation for federal income tax purposes.  Instead, the holders of Certificates of Beneficial Interest in Mesabi Trust (“Unitholders”) are considered “owners” of the Trust and the Trust’s income is taxable directly to the Unitholders.  The Certificates of Beneficial Interest in Mesabi Trust are listed on the New York Stock Exchange (“NYSE”) and is therefore subject to extensive regulation under, among others, the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), each as amended, and the rules and regulations of the NYSE.

Limited authorities and responsibilities of the Trustees

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 may deem necessary or proper for the preservation and protection of the Trust Estate (as defined on page 21 of this Annual Report).  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”) Unitholders after the payment of, or provision for, such expenses and liabilities, and protecting and conserving the assets held.  Because the Units of the Trust are registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, and are listed on the New York Stock Exchange, the Trustees are also responsible for ensuring that the Trust maintains compliance with all applicable laws, rules and regulations.  Deutsche Bank Trust Company Americas, the Corporate Trustee, performs certain administrative functions for 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.  The Trust has no employees, but it engages independent consultants to assist the Trustees in, among other things, monitoring the amount and sales prices of iron ore products shipped from Silver Bay, Minnesota, based on information supplied to the Trustees by Northshore Mining Company (“Northshore”), the lessee/operator of the lands leased under the Peters Lease and Cloquet Lease (the “Peters Lease Lands” and “Cloquet Lease Lands,” respectively, as further described on page 23 of this Annual Report) 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, “Mesabi Trust Lands”), and its parent company Cleveland-Cliffs Inc.  (“Cliffs”).  References to Northshore in this Annual Report, unless the context requires otherwise, are applicable to Cliffs as well.

The information regarding amounts and sales prices of shipped iron ore products is used to compute the royalties payable to the Trust by Northshore.  The Trustees request material information, from time to time, for use in the Trust’s periodic reports and as part of their evaluation of the Trust’s disclosure controls and procedures.  The Trustees rely on Northshore to provide accurate and timely information for use in the Trust’s periodic and current reports filed with the Securities and Exchange Commission.

Duration and Termination of the Trust

The Trust is governed by New York trust and estate law, which prohibits creation of any trust estate that suspends the power of alienation by a condition or limitation for a period longer than lives in being at the time of the creation plus a term of twenty-one years.  Pursuant to a ruling from the Internal Revenue Service, which ruling was based on the terms of the Agreement of Trust including the prohibition against entering into any business, the Trust is not taxable as a corporation for federal income tax purposes.

Instead, the Unitholders are considered “owners” of the Trust and the Trust’s income is taxable directly to the Unitholders.  In accordance with the Agreement of Trust, the Trust may continue to remain in force and effect until twenty-one years after the death of the survivor of twenty-five persons named in an exhibit to the Agreement of Trust.  Based upon the results of research conducted by a third party private investigation firm engaged by the Trustees, as of October 1, 2014, at least five of the twenty-five persons were alive and the youngest of those was believed to be fifty-four years old.  The Trustees believed that there were a number of other individuals named in the Agreement of Trust who were also alive as of October 1, 2014.

The Trust may be terminated earlier at any time by the action of Unitholders holding 75% of the total units of beneficial interest of the Trust as evidenced by any instrument executed by such Unitholders or by such Unitholders’ voting in favor of the termination of the Trust at a duly called and held meeting of the Unitholders.

RISK FACTORS

The results of operations and financial condition of the Trust are subject to various risks.  Some of these risks are described below, and you should take such risks into account in evaluating the Trust or any investment decision involving the Trust.  This section does not describe all risks that may be applicable to the Trust and it is intended only as a summary of certain material risk factors.  More detailed information concerning the risk factors described below may also be contained in other sections of this Annual Report.

The Trustees have no control over the operations and activities of Cliffs or Northshore.

Except within the framework of the Amended Assignment Agreements, neither the Trust nor the Trustees have any control over the operations and activities of Cliffs or its wholly-owned subsidiary, Northshore.  Accordingly, the royalty income of the Trust is highly dependent upon the activities, investments and operational decisions of Cliffs and Northshore, including temporary or permanent idling of operations, the supply and demand of suppliers and customers in the iron ore and steel industry in the U.S.  and internationally, and the terms and conditions of the Amended Assignment Agreements.  Northshore, together with Cliffs, without any input or influence from the Trust or the Trustees, control: (i) current operating plans, 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) plans for Northshore’s future production, operations and capital expenditures, if any; (iii) geological data relating to iron ore reserve estimates; (iv) sales and marketing efforts, and shipments of iron ore products to customers of Cliffs; and (v) the terms and conditions, especially related to pricing and price adjustment mechanisms, of the Cliffs Pellet Agreements (described on page 11 of this Annual Report).  Any substantial change in Cliffs’ financial condition or business, or the operations, production and shipments of iron ore products by Northshore, including production curtailments, temporary idling or permanent idling of Northshore operations, about which the Trust may have little or no prior notice, could adversely affect the royalty income of the Trust, as well as the resulting cash available for distribution by the Trust to Unitholders.

Due to the lack of industry and geographic diversification, adverse developments in the iron ore mining industry could adversely impact the Trust’s financial condition, results of operations and cash flows and reduce its ability to make distributions to the Trusts’ unitholders.

Substantially all of the revenue, operating profits and assets of the Trust relate to one business segment—iron ore mining.  In addition, the principal assets of the Trust consist of two different interests in certain properties in the Mesabi Iron Range located in northern Minnesota.  This concentration could disproportionately expose the Trust's interests to operational and regulatory risks in that area.  Due to the lack of diversification in industry type and location of the Trust's interests, adverse developments in the iron ore markets or at the location of the Trust’s real estate interests could have a significantly greater impact on the Trust's financial condition, results of operations and cash flows than if the Trust’s interests were more diversified.

The stability of Cliffs’ North American iron ore operations and the price adjustment provisions in the North American iron ore supply agreements with Cliffs’ customers could have a significant effect on the cash available for distribution by the Trust to Unitholders.

In its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission on February 14, 2018  (“Cliffs’ Annual Report”), Cliffs reported that during the twelve months ended December 31, 2017, a majority of its U.S.  Iron Ore sales and Asia Pacific Iron Ore sales were made under term supply agreements to a limited number of customers with approximately 74 percent of its revenue was derived from the North American integrated steel industry of which three customers accounted for 88 percent of such sales revenue.  In Cliffs’ Annual Report, Cliffs also cautioned that as a result of pricing adjustments contained in its existing customer contracts and those anticipated in the future periods, its financial results will have increased sensitivity to changes in iron ore and steel prices. 

As discussed elsewhere in Mesabi’s Annual Report, the price adjustment mechanisms under Cliffs’ North American long term customer supply agreements, which can be positive or negative, may result in significant variations in royalties payable to Mesabi Trust from quarter to quarter and year to year.  These variations could materially adversely affect the royalties payable to the Trust and, in turn, the resulting cash available for distribution to Unitholders.

Royalties received by the Trust, and distributions paid to Unitholders, in any particular quarter or year are not necessarily indicative of royalties or distributions that will be paid in any subsequent quarter or in any full year.

Royalties received by the Trust can fluctuate significantly from quarter to quarter and year to year based upon market prices for iron ore products, the level of orders for iron ore products from Cliffs’ customers, the consumption of inventory by Cliffs’ customers, and production decisions made by Northshore.  Moreover, because the royalties paid to the Trust in any particular quarter include payments made with respect to pellets shipped and sold at estimated prices that are subject to future interim and final multi-year adjustments in accordance with the supply agreements between Cliffs and its customers, a downward trend in demand and market prices for iron and steel products could result in negative adjustments to royalties in future quarters, some of which may be significant.  These negative price adjustments could have a material adverse effect on the Trust’s royalty income, which in turn could result in lower quarterly distributions, and possibly reduce or even eliminate funds available for distribution in any quarter and in some quarters may completely offset royalties otherwise payable to the Trust.

Due to the factors described above, cash available for distribution to Unitholders in future quarters could materially decrease, and in some cases, such decrease could result in no cash being available for distribution to Unitholders.  As a result, royalties received by the Trust, and the distributions paid to Unitholders, in any particular quarter are not necessarily indicative of royalties that will be received, or distributions that will be paid, in any

subsequent quarter or in any full year.  Based on the foregoing and the current uncertainty in the economic environment, the Trust cannot ensure that there will be adequate cash available to make a distribution to Unitholders in any particular quarter.

Cliffs has cited certain economic and market risks in Cliffs’ Annual Report, including risks related to the volatility of commodity prices, uncertainty or weakness in global economic conditions, reduced economic growth in China and oversupply of iron ore and excess steel or imported products, any of which could adversely affect Cliffs’ ability to generate revenue, maintain stable cash flow and fund its operations, which in turn could adversely affect Northshore operations and could adversely affect royalties payable to the Trust.

In Cliffs’ Annual Report, Cliffs has disclosed that, as a mining company, its profitability is dependent upon the price of the commodities sold to its customers, and that the price of iron ore has fluctuated significantly in the past and is affected by factors beyond its control including steel inventories; international demand for raw materials used in steel production; rates of global economic growth, especially construction and infrastructure activity that requires significant amounts of steel; changes in the levels of economic activity in the U.S., China, India, Europe and other industrialized or developing countries; uncertainties or weaknesses in global economic conditions such as the U.S.  debt ceiling; changes in production capacity of other iron ore suppliers, especially as additional supplies come online or where there is a significant increase in imports of steel into the U.S.  or Europe; changes in trade laws; weather-related disruptions or natural disasters that may impact the global supply of iron ore; and the proximity, capacity and cost of infrastructure and transportation.  Further, Cliffs stated that its earnings may fluctuate with the prices of the commodities it sells.  To the extent that the prices of these commodities, including the average hot roll coil price, significantly decline for an extended period of time, Cliffs may have to revise its operating plans, including curtailing production, reducing operating costs and capital expenditures and discontinuing certain exploration and development programs.  Cliffs also disclosed that it may have to take impairments on its long-lived assets and/or inventory.  Sustained lower prices also could cause Cliffs to reduce existing reserves if certain reserves no longer can be economically mined or processed at prevailing prices.  Cliffs may be unable to decrease its costs in an amount sufficient to offset reductions in revenues and may incur losses.  These events could have a material adverse effect on Cliffs and, in certain circumstances, could potentially adversely affect Northshore, which in turn, could have a material adverse effect on future royalties payable to Mesabi Trust.

Uncertainty or weakness in the global economic conditions and reduced economic growth in China and oversupply of iron ore and excess steel or imported products could adversely affect future royalties payable to the Trust.

The world price of iron ore is strongly influenced by global economic conditions, including international demand and supply for iron ore products.  In particular, the current level of international demand for raw materials used in steel production is driven largely by industrial growth in China.    Cliffs cautioned in Cliffs’ Annual Report that uncertainties or weaknesses in global economic conditions, including the slowing economic growth rate in China, has resulted, and could in the future result, in decreased demand for its products and, together with oversupply of imported products, has and may continue to lead to decreased prices, resulting in lower revenue levels and decreasing margins, which have in the past and may in the future affect adversely its business and negatively impact its financial results.  We are not able to predict how the global economic conditions, including the current slower growth and challenging economic conditions of China, will change or not change and the impact it may have on Cliffs and Northshore’s operations and the iron ore and steel industries in general going forward.

Uncertainties or weaknesses in global economic conditions and national or regional economic or political instability or other events could produce major changes in demand patterns and consumption of raw materials used in steel production, which could have a material adverse effect on the royalties payable to the Trust.  The Trustees are not able to predict the impact the volatile global economic conditions will have on future royalties payable to the Trust.

Although Cliffs reported that it has long-term contractual commitments for a majority of sales in its U.S.  Iron Ore business, it cautioned that the uncertainty in global economic conditions may adversely impact the ability of its customers to meet their obligations.  As a result of such market volatility, Cliffs’ customers could approach Cliffs about modifying their supply agreements with Cliffs or fail to perform under such agreements.  Considering Cliffs’ limited base of current and potential customers, any modifications to Cliffs’ sales agreements or customers’ failures to perform under such agreements could impact adversely Cliffs’ sales, margins, profitability and cash flows.  Any modifications to such supply agreements, including reductions in pricing, or Cliffs’ customers’ failures to perform under such agreements could materially adversely affect the royalties payable to the Trust and, in turn, the cash available for distribution to Unitholders.

Cliffs has disclosed certain financial risks in Cliffs’ Annual Report, including risks related to its substantial level of indebtedness, risks related to potential limitations on its ability to invest in the ongoing needs of its business, risks concerning its ability to generate sufficient cash flow to service all of its debt, and risks related to adverse changes in credit ratings, which may adversely affect its cost of financing

Cliffs has disclosed in Cliffs’ Annual Report that (i) due to its substantial level of indebtedness, it has to dedicate a significant portion of its cash flow from operations to the payment of debt service, reducing the availability of its cash flow to fund capital expenditures, acquisitions or other strategic development initiatives and other general corporate purposes, (ii) if its cash flows and capital resources are insufficient to fund its debt service obligations, it may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, including additional secured or unsecured debt, or restructure or refinance its debt, which could be at higher interest rates and may require it to comply with more onerous covenants, which could further restrict its business operations, and (iii) credit rating agencies could downgrade its ratings either due to factors specific to its business, a prolonged cyclical downturn in the mining industry, or macroeconomic trends (such as global or regional recessions) and trends in credit and capital markets more generally, which would may result in an increase to its cost of financing and limit its access to the capital markets, which would harm its financial condition and results of operations, and hinder its ability to refinance existing indebtedness on acceptable terms, and may affect adversely the terms under which it purchases goods and services.

If Cliffs incurs significant losses in future periods, Cliffs believes that it may be unable to continue as a going concern.  Cliffs also reported in Cliffs’ Annual Report that if it is unable to continue as a going concern, it may consider, among other options, further restructuring its debt although there can be no assurance that these options will be undertaken and, if so undertaken, whether these efforts will succeed.

These potential circumstances, if they become real developments, could have a material adverse effect on Cliffs and Northshore, which in turn, could have a material adverse effect on royalties paid to Mesabi Trust in the future.

Equipment failures and other unexpected events at Northshore may lead to production curtailments or shutdowns.

Interruptions in production capabilities at the mine operated by Northshore may have an adverse impact on the royalties payable to the Trust.  In addition to planned production shutdowns or curtailments and equipment failures, the Northshore facilities are also subject to the risk of loss due to unanticipated events such as fires, explosions or extreme weather conditions.  The manufacturing processes that take place in Northshore’s mining operations, as well as in Northshore’s crushing, concentrating and pelletizing facilities, depend on critical pieces of equipment, such as drilling and blasting equipment, crushers, grinding mills, pebble mills, thickeners, separators, filters, mixers, furnaces, kilns and rolling equipment, as well as electrical equipment, such as transformers.  It is possible that this equipment may, on occasion, be out of service because of unanticipated failures or unforeseeable acts of vandalism or terrorism.  In addition, because the Northshore processing facilities have been in operation for several decades, some of the equipment is aged.  Because the Trustees have no control over the operations or maintenance of the equipment at Northshore, a shutdown or reduction in capacity may come with little or no advance warning.  The remediation of any interruption in production capability at Northshore could require Cliffs to make large capital expenditures which may take place over an extended period of time.  Cliffs also stated in its most recent annual report that if its cash flows and capital resources are insufficient to fund its debt service obligations, it may be forced to reduce or delay investments and capital expenditures.  At the end of November 2015, Northshore shut down all of its taconite production lines and remained idle until May 2016.  According to Cliffs, the temporary idle was a result of historic levels of steel imports into the U.S.  and reduced demand from our steel-producing customers.  Any additional idling, shutdown, reduction in operations, or production curtailment at Northshore would likely adversely affect the royalties payable to the Trust.

The mining operations of Northshore are subject to extensive governmental regulations and Northshore is subject to risks related to its compliance with federal and state environmental regulations.

Northshore, as the operator of the mine on Mesabi Trust Lands, is subject to various federal, state and local laws and regulations on matters such as employee health and safety, air quality, water pollution, plant, wetlands, natural resources and wildlife protection, reclamation and restoration of mining properties, the discharge of materials into the environment, and the effects that mining has on groundwater quality, conductivity and availability.  Northshore is required to maintain numerous permits and approvals issued by federal and state regulatory agencies and its mining operations are subject to inspection and regulation by the Mine Safety and Health Administration of the United States Department of Labor (“MSHA”) under the provisions of the Mine Safety and Health Act of 1977.  The Occupational Safety and Health Administration (“OSHA”) has jurisdiction over safety and health standards not covered by MSHA and the Minnesota Pollution Control Agency (“MPCA”) regulates various aspects of Northshore’s operations.  Northshore may from time to time be involved in disputes or litigation with the regulatory agencies over certain aspects of its operation but because the Trust has no control over Northshore’s operations, the potential impact of these proceedings cannot be determined.  Moreover, Northshore is solely responsible for its compliance with any laws, regulations or permits applicable to Northshore’s operations and Northshore may at times fail to operate in compliance with such laws, regulations and permits.  The Trust has no ability to control or determine whether Northshore has been or will in the future operate in compliance with such laws and regulations.  If Northshore fails to comply with these laws, regulations or permits, it could be subject to fines or other sanctions, any of which could have an adverse effect on its operations and its ability to ship iron ore products from Silver Bay, Minnesota, which could, in turn, have a material adverse effect on the royalties paid to the Trust.

TMDL (a regulatory term describing a value of the maximum amount of a pollutant that a body of water can receive while still meeting water quality standards under the Clean Water Act) regulations are contained in the Clean Water Act and as a part of Minnesota’s Mercury TMDL Implementation Plan, in cooperation with the MPCA, the taconite industry developed a Taconite Mercury Reduction Strategy and signed a voluntary agreement to effectuate its terms.  The strategy includes a 75 percent target reduction of mercury air emissions from Minnesota pellet plants collectively by 2025.  For Cliffs, the requirements in the voluntary agreement do not apply to Northshore.  Late in 2013, however, Minnesota published a draft mercury control rule that would require annual mercury emissions reporting and could require installation of mercury emission control equipment on all Cliffs’ Minnesota facilities including those of Northshore.  On September 22, 2014, Minnesota promulgated the Mercury Air Emissions Reporting and Reduction Rule mandating mercury air emissions reporting and reduction.  The adopted rule expanded applicability to all of Cliffs’ Minnesota operations and requires submitting a mercury reduction plan in 2018 to reduce mercury emissions from all of Cliffs’ Minnesota taconite furnaces by 72 percent by January 2025 and 70 percent reduction from Northshore’s industrial boilers by January 1, 2018.  The adopted rule does not include all four Adaptive Management Criteria for evaluating mercury reduction, which were agreed upon in the October 2009 Minnesota’s Mercury TMDL Implementation Plan.  According to Cliffs’ Annual Report, there is currently no proven technology to cost-effectively reduce mercury emissions from taconite furnaces to the target level of 72 percent that would meet all four Adaptive Management Criteria.  Cliffs expressed its concerns about the technical and economic feasibility to reduce taconite mercury emissions by 72 percent and are conducting detailed engineering analysis to determine the impact of the regulations on each unique iron ore indurating furnace affected by this rule.  The Trustees are unable to predict what impact, if any, the Mercury Air Emissions Reporting and Reduction Rule will have on production and shipments from Northshore or future royalties payable to the Trust.

The Trust does not control the portion of Northshore’s shipments that will come from ore mined from Mesabi Trust Lands.

The Trustees do not exert any influence over mining operational decisions at Northshore and Northshore alone determines whether to mine from Mesabi Trust Lands or state-owned lands, based on its current production estimates and engineering plan.  Northshore’s mining operations include Mesabi Trust Lands and mineral-producing land owned by the State of Minnesota and others.  Ore mined by Northshore from lands other than Mesabi Trust Lands is processed, along with ore mined from Mesabi Trust Lands, in Northshore-owned crushing, concentrating and pelletizing facilities and is separately accounted for on a periodic basis.  Northshore also has the ability to process and ship iron ore products from lands other than Mesabi Trust Lands.  In certain circumstances, the Trust may be entitled to royalties on those other shipments, but not in all cases.  In general, the Trust will receive higher royalties (assuming all other factors are equal) if a higher percentage of shipments is from Mesabi Trust Lands.  The percentages of shipments from Mesabi Trust Lands were 92.6%, 99.6%, 88.9%, 90.8% and 93.5% in calendar years 2017, 2016, 2015, 2014 and 2013, respectively.  If

Northshore decides to materially reduce the percentage of ore mined, or pellets shipped, from Mesabi Trust Lands, the income of the Trust could be materially adversely affected.

Royalties payable to the Trust could be materially adversely affected by the failure of the Trust’s independent consultants to competently perform.

As permitted by the terms of the Agreement of Trust and the Amendment, the Trustees are authorized to, and in fact do, rely upon certain independent consultants to assist the Trustees in carrying out and fulfilling their obligations as Trustees.  Independent consultants perform services, render advice and produce reports with respect to monthly production and shipments, which include figures on crude ore production, iron ore pellet production, iron ore pellet shipments, and discussions concerning the condition and accuracy of the scales used to weigh iron ore pellets produced at Northshore’s facilities.  The Trustees have also retained an accounting firm to provide non-audit services, including preparing financial statements, reviewing financial data related to shipping and sales reports provided by Northshore and reviewing the schedule of leasehold and fee royalties payable to the Trust.  The Trustees believe that the independent consultants are qualified to perform the services and functions assigned to them.  Nevertheless, any negligence or the failure of any such independent consultants to competently perform could materially adversely affect the royalties to be received by the Trust.

The Trust relies on Cliffs’ estimates of recoverable reserves, and if those estimates are inaccurate, the total potential future royalty stream to the Trust and distributions payable to Unitholders may be materially adversely affected.

The Trustees do not participate in preparing the recoverable ore reserve estimates reported by Cliffs.  According to Cliffs’ Annual Report, Cliffs regularly evaluates its iron ore reserves based on revenues and costs and updates them as required in accordance with Securities Act Industry Guide 7, promulgated by the Securities and Exchange Commission.  In 2013, the Trustees engaged an independent firm of geological experts to evaluate the process Cliffs uses to estimate the recoverable iron ore reserves at the Peter Mitchell Mine.  Still, there are numerous uncertainties inherent in estimating quantities of reserves of mineral producing lands and such estimates necessarily depend upon a number of variable factors and assumptions, such as production capacity, effects of regulations by governmental agencies, future prices for iron ore, future industry conditions and operating costs, severance and excise taxes, development costs and costs of extraction and reclamation costs, all of which may in fact vary considerably from actual results.  All of these factors are outside of the control and influence of the Trustees.  For these reasons, estimates of the economically recoverable quantities of mineralized deposits attributable to Mesabi Trust Lands and the classifications of such reserves based on the risk of recovery prepared by different engineers or by the same engineers at different times may vary substantially as the criteria change.  Cliffs’ estimate of the ore reserves could be negatively affected by future industry conditions, geological conditions and ongoing mine planning at the Peter Mitchell Mine.  Actual reserves will likely vary from estimates, and if such variances are negative and material, the expected royalties payable to the Trust could be materially adversely affected and the value of the Trust’s Units could decline.

Cliffs has disclosed certain operational risks, including risks that could arise related to substantial costs from idled production capacity, announced and potential mine closures and risks related to its ability to transport its products to customers at competitive rates and in a timely manner.

In Cliffs’ Annual Report, Cliffs indicated that its decisions concerning which mines to operate and at what capacity levels are made based upon our customers' orders for products, the quality of and cost to mine and process the remaining ore body, as well as the capabilities and cost performance of our mines.  During depressed market conditions, it may concentrate production at certain mines and not operate others in response to customer demand and as a result we will incur idle facility costs.  In 2016, two of its Minnesota mines were temporarily idled for a portion of the year and it indefinitely idled the Empire mine in Michigan in August 2016.  When it restarts idled facilities, it incurs certain costs to replenish inventories, prepare the previously idled facilities for operation, perform the required repair and maintenance activities and prepare employees to return to work safely and to resume production responsibilities.  The amount of any such costs can be material, depending on a variety of factors, such as the period of idle time, necessary repairs and available employees, and is difficult to project.  In addition, Cliffs stated that faced with overcapacity in the iron ore market, it may seek to rationalize assets through asset sales, temporary shutdowns, indefinite idles or closures of facilities.

Cliffs has disclosed in Cliffs’ Annual Report, that mine closures entail substantial costs, that it has idled its Wabush Scully mine in Newfoundland and Labrador, and in November 2014 it began to implement the permanent

closure plan for that mine.  In January 2015, Cliffs ceased active production at the Bloom Lake mine and the mine transitioned to "care-and-maintenance" mode.  Cliffs previously announced that its Canadian affiliates commenced restructuring proceedings under the Companies’ Creditors Arrangement Act (CCAA) to mitigate closure costs in connection with the shutdown of the Bloom Lake mine.  During the second quarter of 2015, the CCAA protection granted to the Bloom Lake Group was extended to include the Wabush Group to facilitate the reorganization of each of their businesses and operations.  As of December 31, 2017, CCAA proceedings are still ongoing.  The Monitor appointed by the court in the CCAA proceedings for the Bloom Lake Group and the Wabush Group has conducted a claims process pursuant to which creditors have filed claims against the Bloom Lake Group and the Wabush Group.  The Monitor is reviewing all claims filed as part of this claims process.  Currently, there is uncertainty as to the amount of the distribution that will be made to the creditors of the Bloom Lake Group and the Wabush Group, including, if any, to Cliffs, and whether Cliffs could be held liable for claims that may be asserted by or on behalf of the Bloom Lake Group or the Wabush Group or by their respective representatives against non-debtor affiliates of the Bloom Lake Group and the Wabush Group.  During 2017, Cliffs became aware that it was probable the Monitor will assert a preference claim against Cliffs and/or certain of our affiliates.  Given that it is probable the claim will be asserted by the Monitor, Cliffs recorded an estimated liability of $55.6 million, which includes the value of Cliffs related-party claims against the Bloom Lake Group and the Wabush Group.  Should the Monitor proceed to assert the claim, Cliffs believes the Monitor will demand an amount in excess of the value of our related-party claims against the estate.  Thus, it is possible that a change in the estimated liability may occur in the future.  Cliffs denies liability for any amount and has indicated it will vigorously defend such claim.  Cliffs also disclosed that if it closes one or more of its own mines, Cliffs’ results of operations and financial condition would likely be affected adversely.  Any additional idling, shutdown, reduction in operations, or production curtailment at Northshore could adversely affect the royalties payable to the Trust.

Cliffs also disclosed that in its U.S.  Iron Ore operations, disruption of the lake and ocean-going vessels and rail transportation services due to weather-related problems and lack of alternative transportation sources could impair Cliffs’ ability to supply iron ore to its customers at competitive rates or in a timely manner, and thus, could adversely affect its sales, margins and profitability. 

These events could have a material adverse effect on Cliffs and potentially Northshore, which in turn, could have a material adverse effect on royalties paid to Mesabi Trust in the future.

The operations at Northshore are largely dependent on a single-source energy supplier.

The operations at Northshore are largely dependent on Silver Bay Power Company, a 115 megawatt power plant, for its electrical supply.  Silver Bay Power Company, which is wholly owned by Northshore, has an interconnection agreement with Minnesota Power, Inc.  for backup power when excess generation is necessary.  In May 2016, Silver Bay Power entered into an agreement with Minnesota Power to purchase roughly half of Northshore's electricity needs from Minnesota Power through 2019.  On January 1, 2020, Silver Bay Power will purchase 100 percent of the electricity requirements of Northshore from Minnesota Power and Silver Bay Power plans to idle both of its generating units except under certain circumstances.  Until the transition is complete, a significant interruption in service from Silver Bay Power Company due to vandalism, terrorism, weather conditions, natural disasters, or any other cause could cause a decrease in production capacity or require a temporary shutdown of Northshore’s operations.  In addition, one natural gas pipeline serves all of Cliffs’ Minnesota mines, and a pipeline failure could idle or substantially impair the operations at Northshore.  Any substantial interruption of, or material reduction in, Northshore’s operations could materially adversely affect the royalties payable to the Trust.

If steelmakers use methods other than blast furnace production to produce steel, or shut down or reduce production using blast furnaces, the demand for iron ore pellets may decrease.

In Cliffs’ Annual Report, Cliffs reported that the demand for Cliffs’ iron ore products in North America is determined by the operating rates for the blast furnaces of steel companies although not all finished steel is produced by blast furnaces.  Finished steel also may be produced by other methods that do not require iron ore pellets and use scrap steel, pig iron, hot briquetted iron and direct reduced iron.  North American steel producers can also produce steel using imported iron ore, semi-finished steel products or other lighter-weight steel alternatives, which eliminates the need for domestic iron ore.  Future environmental restrictions on the use of blast furnaces in North America also may reduce the use of blast furnaces in steel production.  Because the maintenance of blast furnaces can require substantial capital expenditures and may cause prolonged outages, which may reduce demand for pellets, steel manufacturers may choose not to maintain their blast furnaces, and some of them may not have the resources necessary to adequately maintain their

blast furnaces.  If steel manufacturers alter the methods they use to produce steel or otherwise substantially reduce their use of iron ore pellets, demand for iron ore pellets will decrease, which could materially adversely affect the royalties payable to the Trust.

Certain risk factors affecting Cliffs’ North American Iron Ore Business generally, and Northshore operations in particular, could have a material adverse effect on the royalties payable to the Trust.

Because substantially all of the Trust’s revenue is derived from iron ore products shipped by Northshore from Silver Bay, Northshore’s iron ore pellet processing and shipping activities directly impact the Trust’s revenues in each quarter and each year.  A number of the risk factors, as disclosed in Cliffs’ Annual Report, affect Cliffs’ operations, and could impact Northshore’s production and shipment volume.  In Cliffs’ Annual Report, Cliffs identified the following six categories of risk that Cliffs is subject to: (i) economic and market, (ii) regulatory, (iii) financial, (iv) operational, (v) development and sustainability, and (vi) human capital.  These risk factors include, among others, the global economic climate and financial market conditions, economic conditions in the iron ore industry, extensive governmental regulations relating to environmental matters and the costs and risks related thereto, availability of substitute materials, pricing by domestic and international competitors, long-term customer contracts or arrangements by Northshore or its competitors, price adjustment provisions in Cliffs’ North American term supply agreements (which take into account various price indexes), availability of ore boats, production at Northshore’s mining operations, natural disasters, shipping conditions in the Great Lakes and production at Northshore’s pelletizing/processing facility.  Specifically, if any portion of Northshore’s pelletizing lines becomes idle for any reason, production, shipments and, consequently, the royalties payable to the Trust could be materially adversely affected.

We are dependent upon third party information technology systems, which are subject to cyber threats, disruption, damage and failure. 

We are dependent upon third party information systems and other technologies, including those related to our financial and operational management and those related to Cliffs financial and operational management.  Network and information systems‑related events, such as computer hackings, cyber‑attacks, ransomware, computer viruses, worms or other destructive or disruptive software, process breakdowns, denial of service attacks, malicious social engineering or other malicious activities, or any combination of the foregoing, or power outages, natural disasters, terrorist attacks or other similar events, could result in damage to our information and data that is stored or transmitted by our third party vendors or damage or disruption to Cliffs business operations.  Any security breaches, such as misappropriation, misuse, leakage, falsification or accidental release or loss of information maintained in these information technology systems could damage our or Cliffs reputation and require us or Cliffs to expend significant capital and other resources to remedy any such security breach.  There can be no assurance that these events and security breaches will not occur in the future or not ultimately have an adverse effect on the royalties payable to the Trust. 

The Trustees are not subject to annual election and, as a result, the ability of the holders of Trust Certificates to influence the policies of the Trust may be limited.

Directors of a corporation are generally subject to election at each annual meeting of shareholders or, in the case of staggered boards, at regular intervals.  Under the Agreement of Trust, however, Mesabi Trust is not required to hold annual meetings of holders of Trust Certificates to elect Trustees and Trustees generally hold office until their death, resignation or disqualification.  As a result, the ability of holders of Trust Certificates to effect changes in the composition of those serving as Trustees and the policies of the Mesabi Trust is significantly more limited than that of the shareholders of a corporation.

We are subject to the continued listing criteria of the NYSE, and our failure to satisfy these criteria may result in delisting of our units.

Our units are currently listed for trading on the NYSE.  In order to maintain the listing, we must maintain certain objective standards such as unit prices and a minimum number of public unitholders.  In addition to objective standards, the NYSE may delist the securities of any issuer using subjective standards such as, if in the NYSE’s opinion, the issuer’s financial condition and/or operating results appear unsatisfactory or if any event occurs or any condition exists which makes continued listing on the NYSE inadvisable.

If the NYSE delists our units, unitholders may face material adverse consequences, including, but not limited to, a lack of trading market for our units and reduced liquidity.

OVERVIEW OF TRUST’S ROYALTY STRUCTURE

Leasehold royalty income constitutes the principal source of the Trust’s revenue.  Royalty rates are determined in accordance with the terms of Mesabi Trust’s leases and assignments of leases.  Three types of royalties, as well as royalty bonuses, comprise the Trust’s royalty income:

The current royalty rate schedule became effective on August 17, 1989 pursuant to the Amended Assignment Agreements, which the Trust entered into with Cyprus Northshore Mining Corporation (“Cyprus NMC”).  Pursuant to the Amended Assignment Agreements, overriding royalties are determined by both the volume and selling price of iron

ore products shipped.  In 1994, Cyprus NMC was sold by its parent corporation to Cliffs and renamed Northshore Mining Company.  Cliffs now operates Northshore as a wholly owned subsidiary.

Under the relevant agreements, Northshore has the right to mine and ship iron ore products from lands other than Mesabi Trust Lands.  Northshore alone determines whether to conduct mining operations on Mesabi Trust Lands 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 use of iron ore products from Mesabi Trust Lands, Mesabi Trust receives royalties on stated percentages of iron ore shipped from Silver Bay, whether or not the iron ore products are from Mesabi Trust Lands.  Mesabi Trust receives royalties at the greater of (i) the aggregate quantity of iron ore products shipped that were 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 such year, 85% of the next two million tons shipped during such year, and 25% of all tonnage shipped during such year in excess of six million tons.

Royalty income, which constitutes the principal source of the Trust’s revenue, comprised 99.7% to 99.9% of the Trust’s total revenue in each of the fiscal years ended January 31, 2018,  January 31, 2017 and January 31, 2016.  A more complete discussion of royalty rates and the manner in which they are determined is set forth under the headings “Leasehold Royalties” and “Land Trust and Fee Royalties,” in this Annual Report.

During the course of its fiscal year some portion of royalties expected to be paid to Mesabi Trust is based in part on estimated prices for iron ore products sold under term contracts between Northshore, Cliffs and their customers (the “Cliffs Pellet Agreements”).  The Cliffs Pellet Agreements use estimated prices which are subject to interim and final pricing adjustments, which can be positive or negative, and which adjustments are dependent in part on multiple price and inflation index factors that are not known until after the end of a contract year.  Even though Mesabi Trust is not a party to the Cliffs Pellet Agreements, these adjustments can result in significant variations in royalties payable to Mesabi Trust (and in turn the resulting amount 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.  In either case, these price adjustments will impact future royalties payable to the Trust that become available for distribution to Unitholders. 

As described elsewhere in this Annual Report, 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 also described elsewhere in this Annual Report, the Trust receives a bonus royalty equal to a percentage of the gross proceeds of iron ore products (mined from Mesabi Trust lands) shipped from Silver Bay and sold at prices above the Adjusted Threshold Price.  Although 98.1% all of the iron ore products shipped from Silver Bay during calendar 2017 were sold at prices higher than the Adjusted Threshold Price, the Trustees are unable to project whether Cliffs will continue to be able to sell iron ore products at prices above the applicable Adjusted Threshold Price, entitling the Trust to any future bonus royalty payments.

SELECTED FINANCIAL DATA

TRUSTEES’ DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Comparison of Iron Ore Pellet Production and Shipments for the Fiscal Years Ended January 31, 2018,  January 31, 2017 and January 31, 2016

During fiscal 2018, production attributed to Trust lands totaled approximately 4.8 million tons, an increase of 29.8% as compared to production for fiscal year 2017 and an increase of 38.8% as compared to production for fiscal 2016.  Shipments to Northshore’s customers attributed to the Trust totaled approximately 4.9 million tons during fiscal 2018.  This represents an increase of 48.6% as compared to shipments for fiscal year 2017 and an increase of 39.8% as compared to shipments for fiscal year 2016.  The table below, which is based on information provided to the Trust by Northshore, shows the total production and total shipments of iron ore pellets from Mesabi Trust lands during the prior three fiscal years.

Production of iron ore pellets for the fourth quarter of fiscal 2018 decreased 1.2% as compared to production of iron ore pellets for the fourth quarter of fiscal 2017 due primarily to a decrease in orders from Northshore’s customers as they adjusted production based on anticipated demand from their customers.  Shipments of iron ore pellets by Northshore during the fourth quarter of fiscal 2018 decreased by 54.4% as compared to shipments of iron ore pellets during the fourth quarter of fiscal 2017.  The decrease in shipments in the fourth quarter of fiscal 2018 was caused by a decrease in demand from Northshore’s customers.

The table below shows the change in the percentages of production and shipments from lands owned or leased by Mesabi Trust versus the percentages of production and shipments from lands owned by the State of Minnesota and others for the most recent three fiscal years.

As is the case with the volume of shipments from Silver Bay, Minnesota, the Trustees cannot predict what percentage of production or shipments will be attributable to iron ore mined from Mesabi Trust lands in fiscal 2018.  However, pursuant to the Amendment, Mesabi Trust will be credited with at least 90% of the first four million tons of iron ore pellets shipped from Silver Bay, Minnesota in each calendar year, at least 85% of the next two million tons of pellets shipped from Silver Bay, Minnesota in each calendar year, and at least 25% of all tons of pellets shipped from Silver Bay, Minnesota in each calendar year in excess of six million tons.

Comparison of Financial Results for Fiscal Years ended January 31, 2018 and January 31, 2017

Royalty Income

As shown in the table below, in fiscal 2018 base royalties increased by 160.0%, bonus royalties increased by 406.9% and fee royalties increased by 24.6%, each as compared to fiscal 2017.  Accordingly, the Trust’s total royalty income increased by 221.3% in fiscal 2018 as compared to fiscal 2017.  The increase in royalties received by the Trust is primarily the result of an increase in iron prices and the corresponding bonus royalty rate and an increase in tons shipped in fiscal 2018, as compared to fiscal 2017.

The royalty amounts set forth in the table above include pricing adjustments made to royalty payments previously received by the Trust based on shipments from Silver Bay, Minnesota during prior calendar years.  Depending on the year, the volume of shipments, and the interim and final price paid to the Trust for shipments from Silver Bay, Minnesota, the price adjustment provisions of the Cliffs Pellet Agreements may increase or decrease, in some cases materially, the royalties paid to the Trust.  Because the Trust is not a party to the Cliffs Pellet Agreements, the Trustees are unable to predict the extent of any pricing adjustments that may occur under the Cliffs Pellet Agreements or whether the adjustments will increase or decrease royalties payable to the Trust.  With the current volatility in demand and prices for iron ore and steel products, the price adjustment provisions in the Cliffs Pellet Agreements may have a significant impact on future royalties payable to the Trust and the adjustments, depending on whether they are positive or negative, may increase or decrease the distributions payable to Unitholders.

Total Revenues, Expenses, Net Income and Distributions

As set forth in the table below, net income for fiscal 2018 increased by 248.4%, as compared to fiscal 2017, primarily due to an increase in iron prices and the corresponding bonus royalty rate and an increase in tons shipped.  Total expenses for fiscal 2018 decreased by 4.6% as compared to fiscal 2017.  A more detailed summary of the Trust’s

expenses, including legal and accounting expenses, is set forth under the heading “Trust Expenses” in this Annual Report.

As discussed in the paragraph above,  the Trust’s total royalty income and net income for fiscal 2018 increased by 222.0% and 248.4%, respectively, due to an increase in the iron prices and the corresponding bonus royalty rate during fiscal 2018, both as compared to fiscal 2017.  The increase in the Trust’s net income resulted in a 295.3% increase in total distributions declared to Unitholders in fiscal 2018, as compared to fiscal year 2017.

Unallocated Reserve

As set forth in the table below, the Unallocated Reserve increased by $301,941 or 3.0% to $10,507,411, as of January 31, 2018, as compared to $10,205,470 as of January 31, 2017.  As of January 31, 2018, the Unallocated Reserve consisted of $8,630,674 in unallocated cash and U.S.  Government securities, $1,956,091 of accrued income receivable and no deferred royalty revenue.  Comparatively, as of January 31, 2017, the Unallocated Reserve consisted of $12,314,425 in unallocated cash and U.S.  Government securities, $45,045 of accrued income receivable and deferred royalty revenue of $2,099,415.

The 3.0% increase in the Unallocated Reserve for the fiscal year ended January 31, 2018 as compared the fiscal year ended January 31, 2017,  is primarily the result of an increase in the accrued income receivable and a decrease in the deferred royalty revenue.

Accrued Income Receivable.  The $1,911,046, or 4242.5%, increase in the accrued income receivable portion of the Unallocated Reserve is the result of positive pricing adjustments recognized and the royalties earned on shipments in the last month of the fiscal year ended January 31, 2018, as compared to the fiscal year ended January 31, 2017.

Deferred Royalty Revenue.  The $2,099,415, or 100%, decrease in the deferred royalty revenue portion of the Unallocated Reserve is the result of negative pricing adjustments recognized in the last month of the fiscal year ended January 31, 2017, as compared to the fiscal year ended January 31, 2018.

As described elsewhere in this Annual Report, pricing estimates are adjusted on a quarterly basis as updated pricing information is received from Northshore.  It is possible that future negative price adjustments could offset, or even eliminate, 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 discussion under the heading “Risk Factors” in this Annual Report.

Unallocated Cash and U.S.  Government Securities.  The Trust’s unallocated cash and U.S.  Government Securities for unexpected obligations decreased by 29.9% to $8,630,674 as of January 31, 2018 from $12,314,425 as of January 31, 2017.  The $3,683,751 decrease in the Trust’s cash reserve resulted from a decrease in the royalty payment received in January 2018 as compared to the royalty payment received in January 2017.

Comparison of Financial Results for Fiscal Years ended January 31, 2017 and January 31, 2016

Royalty Income

As shown in the table below, in fiscal 2017 base royalties decreased by 1.0%, bonus royalties increased by 61.0% and fee royalties decreased by 0.1%, each as compared to fiscal 2016.  Accordingly, the Trust’s total royalty income increased by 10.5% in fiscal 2017 as compared to fiscal 2016.  The increase in royalties received by the Trust is primarily the result of an increase in iron prices and the corresponding bonus royalty rate in fiscal 2017, as compared to fiscal 2016.

The royalty amounts set forth in the table above include pricing adjustments made to royalty payments previously received by the Trust based on shipments from Silver Bay, Minnesota during prior calendar years.  Depending on the year, the volume of shipments, and the interim and final price paid to the Trust for shipments from Silver Bay, Minnesota, the price adjustment provisions of the Cliffs Pellet Agreements may increase or decrease, in some cases materially, the royalties paid to the Trust.  Because the Trust is not a party to the Cliffs Pellet Agreements, the Trustees are unable to predict the extent of any pricing adjustments that may occur under the Cliffs Pellet Agreements or whether the adjustments will increase or decrease royalties payable to the Trust.  With the current volatility in demand and prices for iron ore and steel products, the price adjustment provisions in the Cliffs Pellet Agreements may have a significant impact on future royalties payable to the Trust and the adjustments, depending on whether they are positive or negative, may increase or decrease the distributions payable to Unitholders.

Total Revenues, Expenses, Net Income and Distributions

As set forth in the table below, net income for fiscal 2017 increased by 12.3%, as compared to fiscal 2016, primarily due to an increase in iron prices and the corresponding bonus royalty rate.  Total expenses for fiscal 2017 decreased by 3.4% as compared to fiscal 2016.  A more detailed summary of the Trust’s expenses, including legal and accounting expenses, is set forth under the heading “Trust Expenses” in this Annual Report.

As discussed in the paragraph above,  the Trust’s total royalty income and net income for fiscal 2017 increased by 10.4% and 12.3%, respectively, due to an increase in the iron prices and the corresponding bonus royalty rate during fiscal 2017, both as compared to fiscal 2016.  The increase in the Trust’s net income resulted in a 611.1% increase in total distributions declared to Unitholders in fiscal 2017, as compared to fiscal year 2016.

Unallocated Reserve

As set forth in the table below, the Unallocated Reserve increased by $1,216,306 or 13.5% to $10,205,470, as of January 31, 2017, as compared to $8,989,164 as of January 31, 2016.  As of January 31, 2017, the Unallocated Reserve consisted of $12,314,425 in unallocated cash and U.S.  Government securities, $45,045 of accrued income

receivable, and deferred royalty revenue of $2,099,415.  Comparatively, as of January 31, 2016, the Unallocated Reserve consisted of $8,127,881 in unallocated cash and U.S.  Government securities, $978,146 of accrued income receivable, and no deferred royalty revenue.

The 13.5% increase in the Unallocated Reserve for the fiscal year ended January 31, 2017 as compared the fiscal year ended January 31, 2016,  is primarily the result of an increase in the unallocated cash and U.S.  Government securities caused by a change in the timing of the royalty report received from NSM on a quarterly basis from the beginning of the month in the past, which allowed the Trust to make distributions on the royalty received, to the end of the month in the last several quarters, which does not allow the Trust to make distributions on these royalties received until the following quarter.

Accrued Income Receivable.  The $933,101, or 95.4%, decrease in the accrued income receivable portion of the Unallocated Reserve is the result of pricing adjustments recognized in the last month of the fiscal year ended January 31, 2017, as compared to the fiscal year ended January 31, 2016.

Deferred Royalty Revenue.  The $2,099,415, or 100%, increase in the deferred royalty revenue portion of the Unallocated Reserve is the result of negative pricing adjustments recognized in the last month of the fiscal year ended January 31, 2017, as compared to the fiscal year ended January 31, 2016.

As described elsewhere in this Annual Report, pricing estimates are adjusted on a quarterly basis as updated pricing information is received from Northshore.  It is possible that future negative price adjustments could offset, or even eliminate, 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 discussion under the heading “Risk Factors” in this Annual Report.

Unallocated Cash and U.S.  Government Securities.  The Trust’s unallocated cash and U.S.  Government Securities for unexpected obligations increased by 51.5% to $12,314,425 as of January 31, 2017 from $8,127,881 as of January 31, 2016.  The $4,186,544 increase in the Trust’s cash reserve resulted from a change in the timing of the royalty report received from NSM on a quarterly basis from the beginning of the month in the past, which allowed the Trust to make distributions on the royalty received, to the end of the month in the last several quarters, which does not allow the Trust to make distributions on these royalties received until the following quarter.

Liquidity and Capital Resources

The Trust’s activities are limited to the collection of royalties, payment of expenses and liabilities, distribution of net income to the Trust’s Unitholders and protection and conservation of Trust assets.  Distributions of net income to the Trust’s Unitholders are based on the amount of total royalty income after providing for the payment of expenses and, to the extent deemed prudent by the Trustees, reserving funds in the Unallocated Reserve to provide for potential fixed or contingent future liabilities, including potential future liabilities that cannot be accurately quantified.  See the discussion of the Trustees’ management of liquidity set forth under the heading “Unallocated Reserve” in this Annual Report.

The Trust’s primary short-term liquidity needs are related to the Trust’s distributions to its Unitholders following the Trust’s receipt of royalty payments from Northshore each calendar quarter.  After the Trust receives the royalty payments, the Trust’s current assets are invested in U.S.  government securities, either through direct purchases of U.S.  government securities or through investments in a money market fund that invests its assets in U.S.  Treasury securities and securities guaranteed by the U.S.  government, its agencies or instrumentalities, or the FDIC.  Due to the short-term duration and investment grade nature of these investments, the Trustees believe that the Trust’s current assets are adequate to meet the Trust’s currently foreseeable liquidity needs.  As of January 31, 2018, the Trust held $314,835 

in cash and cash equivalents, all of which was invested in a money market fund that exclusively invests in obligations of the U.S.  Treasury.  In February 2018, the Trust distributed $15,481,612 to Unitholders of record on January 30, 2018.

Off-Balance Sheet Arrangements

The Trust has no off-balance sheet arrangements.

Contractual Obligations

The Trust has no payment obligations under any long-term borrowings, capital lease, operating lease, or purchase agreement.

Critical Accounting 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.  These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  The Trustees base their estimates and judgments on historical experience and on various other assumptions that the Trustees believe are reasonable under the circumstances.  However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.  Critical accounting policies are those that have meaningful impact on the reporting of the Trust’s financial condition and results of operations, and that require significant judgment and estimates.  For a complete description of the Trust’s significant accounting policies, please see Note 2 to the financial statements on pages F-8 through F-10.

Revenue Recognition

Royalty income under the Amended Assignment Agreements with Northshore is recognized as it is earned.  Under the Amended Assignment Agreements, royalties are earned upon shipment from Silver Bay, Minnesota, regardless of whether the actual sales proceeds for any shipment are received by Northshore.  The amount of base overriding royalties and royalty bonuses payable to the Trust are determined based on the volume of iron ore tonnage shipped from Silver Bay, Minnesota during each calendar quarter and the proceeds to Cliffs resulting from shipments by Cliffs to its customers in accordance with the iron ore pellet sales agreements between Cliffs and its customers.

The Trust’s royalty income includes accrued income receivable.  Accrued income receivable represents royalty income earned but not yet received by the Trust.  Accrued income receivable is calculated using estimated prices and includes (i) shipments during the last month of Mesabi Trust’s fiscal year, if any, and (ii) net positive adjustments (which may include the sum of positive and negative price adjustments) calculated using the pricing adjustment mechanisms in the iron ore pellet sales agreements between Cliffs and its customers that determine the final sales price of the shipments from Silver Bay, Minnesota.

Adjustments to royalty income may result from changes in final reconciliations of tonnage shipped by Northshore with the final amounts received from Cliffs’ customers.  Adjustments may also result from revisions to estimated prices previously used to record revenue for tonnage shipped.  Pricing decreases may give rise to negative price adjustments which may be applied against future royalty income recognized by the Trust and changes in iron ore pellet prices may have a significant impact on the revenue recognized by the Trust.

During the fourth quarter of fiscal 2018, positive price adjustments were recorded by Mesabi Trust and added to accrued income receivable due to price adjustment mechanisms in the agreements between Cliffs and its customers that determine the final sales price of the shipments from Northshore with respect to certain shipments during calendar year 2017.  During the fiscal year ended January 31, 2017, negative price adjustments were recorded by Mesabi Trust as deferred royalty revenue due to price adjustment mechanisms in the agreements between Cliffs and its customers that determine the final sales price of the shipments from Northshore with respect to shipments during calendar year 2016.  As of January 31, 2018, the Trust recognized revenue related to approximately 1,068,786 tons of iron ore that were

shipped by Northshore as of December 31, 2017, but for which Cliffs has indicated that final pricing was not yet known.  Pricing related to these shipments is expected to be finalized in the first quarter of calendar 2019.

Deferred royalty revenue represents an estimate of decreases in pellet revenue related to tons of iron ore that were shipped by Northshore, but for which Northshore has indicated that final pricing is not yet known and is adjusted in accordance with the Trust’s revenue recognition policy each quarter as updated pricing information is received.  Changes in iron ore pellet prices may have a significant impact on the revenue recognized by the Trust.

Current Developments

January 2018 Quarterly Royalty Report.  On January 26, 2018, the Trustees of Mesabi Trust received the quarterly royalty report of iron ore shipments from Silver Bay, Minnesota during the quarter ended December 31, 2017 from Cliffs, the parent company of Northshore. 

As reported to the Trust by Cliffs in the quarterly royalty report, based on shipments of iron ore products by Northshore during the three months ended December 31, 2017, Mesabi Trust was credited with a base royalty of $4,779,006.  Mesabi Trust also was credited with a bonus royalty in the amount of $2,385,071.  Royalties paid to Mesabi Trust, however, reflected a reduction of $1,098,372 as a result of negative pricing adjustments to base and bonus royalty calculations related to changes in price estimates made in the previous calendar quarters of 2017.  In addition, a royalty payment of $133,245 was paid to the Mesabi Land Trust.  Accordingly, the total royalty payments received on January 30, 2018 by Mesabi Trust from Northshore were $6,198,950. 

The royalties paid to Mesabi Trust are based on the volume of shipments of iron ore pellets for the quarter and the year to date, the pricing of iron ore product sales, and the percentage of iron ore pellet shipments from Mesabi Trust lands rather than from non-Mesabi Trust lands.  In the fourth calendar quarter of 2017, Northshore credited Mesabi Trust with 905,923 tons of iron ore shipped, as compared to 1,838,938 tons during the fourth calendar quarter of 2016. 

The volume of shipments of iron ore pellets (and other iron ore products) by Northshore varies from quarter to quarter and year to year based on a number of factors, including the requested delivery schedules of customers, general economic conditions in the iron ore industry, and weather conditions on the Great Lakes.  Further, the prices under the term contracts between Northshore, Cliffs, and certain of their customers (the “Cliffs Pellet Agreements”), to which Mesabi Trust is not a party, are subject to interim and final pricing adjustments, dependent in part on multiple price and inflation index factors that are not known until after the end of a contract year.  These multiple factors can result in significant variations in royalties received by Mesabi Trust (and in turn the resulting funds available for distribution to Unit holders by Mesabi Trust) from quarter to quarter and from year to year.  These variations, which can be positive or negative, cannot be predicted by the Trustees of Mesabi Trust.  Royalty payments received in fiscal 2018 and prior years continue to reflect pricing estimates for shipments of iron ore products that were subject to positive or negative pricing adjustments pursuant to the Cliffs Pellet Agreements.  Based on the above factors and as indicated by the Trust’s historical distribution payments, the royalties received by the Trust, and the distributions paid to Unit holders, if any, in any particular quarter are not necessarily indicative of royalties that will be received, or distributions that will be paid, if any, in any subsequent quarter or full year. 

With respect to calendar year 2018, Northshore has not advised Mesabi Trust of its expected shipments of iron ore products or what percentage of 2018 shipments will be from Mesabi Trust iron ore.  Cliffs indicated that the royalty payments being reported today are based on estimated iron ore pellet prices under the Cliffs Pellet Agreements, which are subject to change.  It is possible that future negative price adjustments could offset, or even eliminate, royalties or royalty income that would otherwise be payable to Mesabi Trust in any particular quarter, or at year end, thereby potentially reducing cash available for distribution to Mesabi Trust’s Unit holders in future quarters. 

Cliffs Announced Plan to Make Capital Investments in Northshore for DR-Grade Pellet Production.  During its third quarter earnings call on October 20, 2017, Cliffs announced that it is investing $75 million at Northshore Mining in Silver Bay over the next two years (through 2019), financing that Cliffs says will allow the plant to more efficiently produce DR-grade pellets.  Cliffs’ CEO Lourenco Goncalves indicated that the company makes about 100,000 tons a year of DR-grade pellets, but the Northshore plant upgrades will boost production capability up to 3.5 million long tons of DR-grade pellets a year, enough to supply the Cliffs’ planned hot-briquetted iron facility in Toledo, Ohio.  Cliffs indicated that work has started on the Northshore upgrades, with plans to complete it by mid-2019. 

Cliffs Announced Groundbreaking Ceremony for its HBI Production Plant in Toledo, Ohio.  Cliffs conducted a groundbreaking event on April 5, 2018 to celebrate the commencement of construction of its first hot-briquetted iron (“HBI”) production plant.  Cliffs also announced that it is investing $700 million to build one of the world’s most modern

and efficient iron making plants, generating a total of 130 new jobs in Toledo, Ohio.  At peak construction, Cliffs estimated that 1,200 people will be working on the site.  The Toledo plant will produce 1.6 million metric tons per year of customized high-quality HBI, and will make Cliffs the sole producer of high-quality customized feedstock for the domestic electric arc furnace (“EAF”) steelmakers located in the Great Lakes region.  In its announcement, Cliffs noted that Cliffs’ domestically produced HBI will supply a Great Lakes market currently estimated at 3 million metric tons, which is currently supplied exclusively by imports of commercial quality pig iron and HBI from countries such as Russia, Ukraine, Brazil and Venezuela, among others.  Start-up of the plant is expected to happen in the summer of 2020.

In its announcement, Lourenco Goncalves, Chairman, President and Chief Executive Officer, was quoted saying, “Today we are launching a new era for the iron and steel industry in the United States.  As Cleveland-Cliffs begins the construction of the first HBI production plant in the Great Lakes region, we are taking the initial steps to enable EAF steelmakers to produce the specs associated with high margin steels for sophisticated end markets, such as automotive and others.”  Lourenco Goncalves added: “For several decades, Cleveland-Cliffs has been supplying the American steelmakers in the Great Lakes with customized pellets to feed their blast furnaces.  With the growth in participation of EAFs, it was just a matter of time for Cleveland-Cliffs to become a supplier of these important steelmakers.  Our HBI will be for the EAFs the same great feedstock our taconite pellets are, and will continue to be, for our blast furnace clients.”

Cliffs Announcement Regarding Tariffs on Steel Imports.  On March 1, 2018, Cliffs issued the following statement regarding President Trump’s announcement of tariffs of 25 percent on steel imported to the United States.  Lourenco Goncalves, Cliffs' Chairman, President and Chief Executive Officer, said, ”We applaud and thank President Trump for taking real action under Section 232 to punish the perpetrators and enablers of unfairly traded steel.  The 25 percent tariffs to be imposed next week will support our ability to continue to produce iron ore pellets and steel in our country, enhancing a vibrant manufacturing economy and our national security.  Artificially cheap steel boosted by subsidies, dumping and circumvention are not signs of competitiveness; these are just signs of blatant disregard to real free trade and to our trade laws.  Once free from these unfair practices, we will finally have a level playing field for steel in the United States.  Going forward, we expect that the Administration will fully enforce the announced actions, making sure that the offenders, particularly the enablers within our borders, will be treated as seriously as they deserve.”

President Trump Signed Orders Imposing Tariffs on Imported Steel.  On March 8, 2018, President Trump signed orders imposing stiff and sweeping new tariffs on imported steel and aluminum.  But he sought to soften the impact on America’s closest allies with a more flexible plan than originally envisioned.  Mr. Trump agreed to exempt, for now, Canada, Mexico and Australia and held out the possibility of later excluding additional allies.  “The actions we are taking today are not a matter of choice; they are a matter of necessity for our security,” Mr. Trump said in a ceremony at the White House where he officially authorized the tariffs, which were effective March 23, 2018.

Flanked by a handful of steel and aluminum workers, some wearing coveralls and holding hardhats, Mr. Trump presented his move as a way to rebuild vital industries decimated by foreign competition.  “Our factories were left to rot and to rust all over the place; thriving communities turned into ghost towns,” he said.  “The workers who poured their souls into building this great nation were betrayed.  But that betrayal is now over.”

The orders represented Mr. Trump’s most expansive use of federal power to rewrite the rules of global trade since he took office and upended the prevailing consensus on free markets that has largely governed Washington under administrations of both parties for decades.  A longtime critic of globalization, Mr. Trump argued that the United States has been ravaged by unfair trading partners.

As a result of Mr. Trump’s action, levies on foreign steel will rise by 25 percent and on imported aluminum by 10 percent.  The United States is the largest steel importer in the world and the order could hit South Korea, China, Japan, Germany, Turkey and Brazil the hardest.  Mr. Trump said his tariff orders were tailored to give him the authority to raise or lower levies on a country-by-country basis and add or take countries off the list as he deems appropriate.

In language authorizing the tariffs, the White House said any nation “with which we have a security relationship is welcome to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports from that country.”  The tariffs would be lifted if a country arrives “at a satisfactory alternative means to address the threat,” the order said.

Mercury TMDL and Minnesota Taconite Mercury Reduction Strategy.  TMDL regulations are contained in the Clean Water Act.  As a part of Minnesota's Mercury TMDL Implementation Plan, in cooperation with the MPCA, the taconite industry developed a Taconite Mercury Reduction Strategy and signed a voluntary agreement in 2009 to effectuate its terms.  The strategy includes a 75% target reduction of mercury air emissions from Minnesota pellet plants collectively by 2025.  It recognizes that mercury emission control technology currently does not exist and will be

pursued through a research effort.  According to the voluntary agreement, any developed technology must meet the "adaptive management criteria" such that the technology must be economically feasible, must not impact pellet quality, and must not cause excessive corrosion in pellet furnaces, associated duct work and existing wet scrubbers on the furnaces.

According to the voluntary agreement, the mines proceeded with medium- and long-term testing of possible technologies.  For Cliffs, the requirements in the voluntary agreement apply to the United Taconite and Hibbing facilities.  At this time, Cliffs was unable to predict the potential impacts of the voluntary Taconite Mercury Reduction Strategy. 

Cross State Air Pollution Rule.  In July 2011, the EPA promulgated the CSAPR, which was intended to address interstate transport of regional haze causing pollutants (NOx and SO 2) via emission limits and trading mechanisms.  Northshore's Silver Bay Power plant is subject to CSAPR.  Complying with CSAPR simultaneously satisfies related regional haze BART obligations because EPA has determined that CSAPR yields greater progress toward attaining EPA's regional haze goals than would application of BART.  The Eighth Circuit Court of Appeals re-affirmed that EPA's use of CSAPR is equal to or better than BART in its March 2016 decision.  Silver Bay Power's CSAPR compliance obligations are met via a combination of fuel management, installation of lower NOx burners, and purchase of NOx and SO 2 allowances from the emission trading market.  NOx and SO 2 allowance prices continue to decline and the estimated cost to purchase NOx and SO 2 allowances currently is less than $5,000.

Future NOx and SO 2 emission allowances allocated to Silver Bay Power will decrease and long-term allowance prices are expected to increase.  In Cliffs’ Annual Report, Cliffs has disclosed that it continues to monitor the availability and pricing of CSAPR allowances and future EPA allocations of CSAPR allowances to its Silver Bay Power plant, but at this time, Cliffs does not anticipate exposure to material costs for future CSAPR obligations.  At this time, Cliffs cannot reasonably estimate the long-term cost impact of CSAPR should EPA significantly reduce overall allowance allocations in response to future lower ozone or particulate matter 2.5 regulations.

Securities Regulation.  The Trust is a publicly traded, pass-through royalty trust with its Trust Certificates listed on the NYSE and is therefore subject to extensive regulation under, among others, the Securities Act of 1933, the Securities Exchange Act of 1934, Sarbanes-Oxley, each as amended, and the rules and regulations of the NYSE.  Issuers failing to comply with such authorities 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 a publicly-traded pass-through royalty trust such as Mesabi Trust.  In particular, Sarbanes-Oxley mandated the adoption by the Securities and Exchange Commission and NYSE of certain rules and regulations that are impossible for the Trust to literally satisfy because of its nature as a pass-through trust (having no employees and none of its own operations, among other things).  Furthermore, pursuant to NYSE rules, as a pass-through royalty trust, the Trust is exempt from many of the corporate governance requirements that apply to other publicly traded corporations.  The Trust does not have, nor does the Agreement of Trust provide for, a board of directors, an audit committee, a corporate governance committee, a compensation committee or executive officers, the these functions are basically performed by the Mesabi Trustees in accordance with the Agreement of Trust.  The Trustees and their advisors closely monitor the Securities and Exchange Commission’s and NYSE’s rulemaking activities and will comply with their rules and regulations to the extent applicable.

Review of Unallocated Reserve.  Each quarter, as authorized by the Agreement of Trust, the Trustees will evaluate all relevant factors including all costs, expenses, charges, obligations, and present and future liabilities (whether known or contingent) of the Trust in determining a prudent level of Unallocated Reserve in light of the unpredictable nature of the iron ore industry and current economic conditions.  As of January 31, 2018, the Trust’s unallocated reserve was $10,507,411.

Other Information.  Mesabi Trust has no employees.  Each year the Trust engages independent consultants to assist the Trustees in monitoring, among other things, the volume and sales prices of iron ore products shipped by Northshore from Silver Bay, Minnesota pursuant to Cliffs’ customer orders and in reviewing all records and calculations of the royalties payable to the Trust each quarter.  As noted above, the information regarding volume and sales prices of shipped iron ore products is used to compute the royalties payable to Mesabi Trust by Northshore.  Deutsche Bank Trust Company Americas, the Corporate Trustee, also performs certain administrative functions for Mesabi Trust.

TO THE HOLDERS OF

CERTIFICATES OF BENEFICIAL INTEREST IN

MESABI TRUST

THE TRUST ESTATE

The principal assets of Mesabi Trust consist of two different interests in certain properties in the Mesabi Iron Range: (i) Mesabi Trust’s interest as assignor in the Amended Assignment of Peters Lease and the Amended Assignment of Cloquet Lease, which together cover properties aggregating approximately 9,750 largely contiguous acres in St.  Louis County, Minnesota (the “Peters Lease Lands” and the “Cloquet Lease Lands,” respectively), and (ii) Mesabi Trust’s ownership of the entire beneficial interest in the Mesabi Land Trust, which has a 20% interest as fee owner in the Peters Lease Lands and a 100% fee ownership in certain non-mineral-bearing lands adjacent to the Peters and Cloquet Lease Lands (the “Mesabi Lease Lands,” together with Mesabi Trust Lands, the “Trust Estate”).  The map below shows the approximate location of the Trust Estate.

☐The boxed area indicates the approximate location of Mesabi Trust’s Trust Estate (not drawn to scale), as defined above under the “Trust Estate,” which is a small part of the region known as the Mesabi Iron Range.  Mesabi Trust does not own any property interests other than those in the Trust Estate

Under the Amended Assignment Agreements, Northshore produces iron ore from Mesabi Trust Lands for the manufacture of iron ore products to be sold to various customers of Cliffs.  Mesabi Trust receives royalties on the crude ore extracted from such lands and the pellets produced from such crude ore, and in each case the royalties are based upon the volume of iron ore products shipped and the prices charged to Cliffs’ customers.

DURATION OF THE TRUST ESTATE

The largest component of the Trust Estate is the Peters Lease Lands.  The Peters Lease provides that the leasehold estate thereunder will continue until the reserves of iron ore, taconite and other minerals or materials on the land subject to the Peters Lease are exhausted.  The Amended Assignment of Peters Lease terminates when the Peters Lease terminates.  The Cloquet Lease, executed in 1916, provides that the leasehold estate thereunder will continue until the reserves of iron ore, taconite and other minerals or materials on the land subject to the Cloquet Lease are exhausted.  The Amended Assignment of Cloquet Lease terminates when the Cloquet Lease terminates.  If Northshore decides to terminate or surrender either the Amended Assignment of Peters Lease or the Amended Assignment of Cloquet Lease, or both of them, it must first give Mesabi Trust at least six months’ notice of its intention to do so and, at Mesabi Trust’s request, reassign all of such leasehold interests to Mesabi Trust.  If any such reassignment occurs, Northshore must transfer the leasehold interests to Mesabi Trust free and clear of liens, except public highways.  In return, Mesabi Trust must assume Northshore’s future obligations as lessee under the reassigned leases.  Upon termination of the lease under either the Amended Assignment of Peters Lease or the Amended Assignment of Cloquet Lease, or both of them, Northshore is obligated to remove within 90 days all engines, tools, machinery, railroad tracks and structures erected or placed by it, or under its direction, on the lands but may not remove or impair any supports placed in the mines, nor any timber or frameworks necessary to the use and maintenance of the shafts or other approaches to the mine.

The Peters Lease Lands and the Cloquet Lease Lands are located at the northeastern end of the Mesabi Iron Range and contain mineral deposits consisting of a highly metamorphosed sedimentary bed of banded magnetite in siliceous gangue, a form of low-grade iron ore known as taconite, approximately three tons of which must be beneficiated to produce one ton of high-grade pellets.  The Mesabi Lease Lands contain substantially no commercial ore deposits and have been used principally in connection with mining the taconite from other parts of the Trust Estate, such as the provision of an area for location of service roads, supporting plants and equipment and dump sites for overburden.

Because the Trust is not involved with the mining operations at Northshore, the Trust relies on the ore reserve estimates reported in Cliffs’ Form 10-K filed with the Securities and Exchange Commission each year.  In Cliffs’ Annual Report, the following information was provided by Cliffs regarding the estimated ore reserves at Northshore.

U.S.  Iron Ore Mineral Reserves

As of December 31, 2017

(In Millions of Long Tons)

According to Cliffs’ Annual Report on Form 10-K for the year ended December 31, 2016 (“Cliffs’ 2016 Report”), reserve estimates are based on pricing that does not exceed the three-year trailing average of benchmark prices for iron ore adjusted to Cliffs’ realized price.  The latest reserve estimate for Northshore was completed in 2015.  In Cliffs’ 2016 Report, Cliffs reported that the average international benchmark price of 62 percent Fe CFR China was $70 per dry metric ton for the three-year period 2014 to 2016.

The Trustees engaged an independent geological consulting firm, Roscoe Postle Associates, Inc.  (“RPA”), to confirm that the process used by Cliffs to estimate the ore reserves in the mine at Northshore is reasonable.  RPA delivered its report to the Trustees in March 2018.  In its report to the Trustees, RPA summarized its review and evaluation of Cliffs’ ore reserve estimation process which was performed by Cliffs in 2015.  RPA reported to the Trustees that the reserve estimation process used by Cliffs is reasonable and comports with the reporting requirements set forth in Securities Act Industry Guide 7.  Based on the report of RPA, at least 90% of the ore reserves in the mine at Northshore, as reported by Cliffs, is attributable to Mesabi Trust Lands.

HISTORY OF THE TRUST’S ACQUISITION OF THE TRUST ESTATE

Prior to the creation of Mesabi Trust and Mesabi Land Trust on July 18, 1961, Mesabi Iron Company (“MIC”), the Trust’s predecessor in interest, owned the interests in the Peters Lease Lands, Cloquet Lease Lands and Mesabi Lease Lands.  MIC obtained its interests as follows:

Peters Lease Lands.  MIC owned a 20% interest in the fee ownership in the Peters Lease Lands.  Originally, the Peters Lease Lands were owned by East Mesaba Iron Company and Dunka River Iron Company which were wholly owned subsidiaries of Dunka-Mesaba Security Company (“Dunka-Mesaba”).  In August 1951, East Mesaba Iron Company and Dunka River Iron Company conveyed the Peters Lease Lands to their parent company, Dunka-Mesaba, which in turn conveyed to each of its stockholders an undivided interest in the Peters Lease Lands in proportion to each stockholder’s ownership in the parent company.  Accordingly, MIC, which had been the owner of 20% of the outstanding capital stock of Dunka-Mesaba, acquired a 20% undivided interest in the Peters Lease Lands and the right to receive a 20% fee royalty under the Peters Lease.

By an instrument dated October 1, 1917, as of April 30, 1915, East Mesaba and Dunka River leased their properties to Claude W.  Peters.  This instrument, as modified by instruments dated February 3, 1921, July 17, 1939 and July 31, 1951, is known as the “Peters Lease.”  Claude W.  Peters acquired the Peters Lease on behalf of MIC and an assignment of the Peters Lease from Claude W.  Peters to MIC was recorded in 1919.  In 1939, MIC assigned the Peters Lease to Reserve Mining Company (“Reserve”) in consideration for which Reserve agreed to pay MIC a percentage of its net profits.  Later, these payments were changed to royalty payments.

Cloquet Lease Lands.  MIC held a leasehold interest in the Cloquet Lease Lands pursuant to the Indenture of Lease dated May 1, 1916.  In 1939, MIC assigned its interest in the Cloquet Lease as lessee to Reserve.

Mesabi Lease Lands.  MIC held a fee interest in the Mesabi Lease Lands, subject to earlier grants of mineral rights to other parties.  In 1939, MIC leased its interest in the Mesabi Lease Lands to Reserve (“Mesabi Lease”).  One 40-acre parcel of the Mesabi Lease Lands was forfeited in the 1980s to the State of Minnesota and subsequently sold to the United States government, excluding the mineral rights granted to other parties.  Further, another 40-acre parcel of the Mesabi Lease Lands, for which the Trust owns only surface rights, is currently being explored for non-ferrous deposits by the holder of the mineral rights to the parcel.  The Trustees do not believe that either parcel was ever involved in, or otherwise material to, Northshore’s mining operations.

Acquisition of Interests from MIC.  MIC had not engaged in actual mining operations since 1939, with all of its ownership of land in fee having been leased out and its leaseholds in land assigned to Reserve in exchange for royalty payments.  Because MIC’s activities in connection with the administration of its assets were limited to the collection of income, the payment of expenses and liabilities, the distribution of the net income and the protection and conservation of the assets held, in July 1961 its board of directors proposed, and its stockholders subsequently approved, to adopt a plan of complete liquidation as a result of which MIC’s assets were transferred to and administered by two trust entities.

To comply with the law of the State of Minnesota, which requires that a trust holding real property located in that state must be administered under Minnesota law, the Mesabi Land Trust was created under Minnesota law on July 18, 1961 pursuant to an Agreement of Trust of even date.  MIC transferred to the Mesabi Land Trust its 20% interest as fee owner in the Peters Lease Lands and its interest as 100% fee owner in the Mesabi Lease Lands and as lessor of the Mesabi Lease (subject to the reservation of mineral rights described above).

Also pursuant to an Agreement of Trust, the Mesabi Trust was created under New York law on July 18, 1961.  MIC transferred to the Mesabi Trust instruments assigning the Amended Assignment of Peters Lease and the Amended Assignment of Cloquet Lease (covering its interest as assignor of the entire leasehold interest in the Peters Lease Lands and the Cloquet Lease Lands), together with cash, marketable securities and other assets.  The Mesabi Trust also received all of the beneficial interest in the Mesabi Land Trust.

Reserve, the original lessee, operated the mine until it closed on July 31, 1986.  Cyprus Minerals Company (“Cyprus”) purchased substantially all of Reserve’s assets on August 17, 1989 and resumed operations as Cyprus NMC.  On September 30, 1994, Cliffs purchased all of Cyprus NMC’s capital stock from Cyprus.  Cliffs renamed the operation Northshore Mining Corporation.

Since the creation of Mesabi Land Trust and Mesabi Trust, although the mining operators have changed and the Peters Lease, the Cloquet Lease and the Mesabi Lease have been further amended and assigned, the Trust Estate has not changed beyond the forfeiture of one parcel of the Mesabi Lease Lands described above.

The diagram below illustrates the relationships of the various parties that own the lands and have interests in the lands the Trust has interests in:

DESCRIPTION OF THE MINERAL PROPERTIES AND NORTHSHORE’S MINING OPERATIONS

Mine and Rock Formation.  The Trust Estate, including the ore mine, are located in northeastern Minnesota, approximately two miles south of Babbitt, Minnesota.  The ore mine on the Trust Estate is called the Peter Mitchell Mine, an open pit mine consisting of a 10-mile long segment of a host rock called the Biwabik Iron Formation, which is a very hard cherty rock containing magnetite as the ore mineral.  The Biwabik Iron Formation extends west and southwest for over 100 miles and constitutes the Mesabi Iron Range.  Recoverable iron grades range from 21% magnetic iron in the west end of the mine open pit to 26% magnetic iron in the central portion and east end.  The ore body dips south under the hanging wall called the Virginia Formation.  To date, the Mesabi Trust properties have been explored for their iron ore potential.  To the knowledge of the Mesabi Trustees, no other minerals have been explored on the Trust Estate.

Mining Properties.  As disclosed elsewhere in this Annual Report, Northshore, a wholly owned subsidiary of Cliffs, currently conducts the mining operation upon the Trust Estate.  The main entrance to the Northshore mine is accessed by means of a gravel road and is located off County Road 70.  Northshore’s processing facilities are located in Silver Bay, Minnesota, near Lake Superior, on U.S.  Highway 61.  Each year, the Trustees visit the Northshore mine in Babbitt, Minnesota and the processing plant in Silver Bay, Minnesota.  During such visits, the Trustees inspect the condition of the mining properties as well as mining equipment and facilities.  Based on information provided to the Trustees during the most recent inspection trip in the third fiscal quarter of 2017, the mining properties and facilities at Northshore were in good operating condition.

Northshore’s Operations.  Because Mesabi Trust is not involved in Northshore’s mining operations, the Trustees do not have detailed firsthand information relating to such operations or the equipment and facilities used by Northshore.  Therefore, the Trustees rely on information provided by Northshore personnel, disclosures by Cliffs in its periodic and current reports filed with the Securities and Exchange Commission and, to some extent, information

provided in other reports published by independent organizations, such as Skillings Mining Review, in providing the information relating to Northshore’s mining operations, equipment and facilities.

During the concentrating process, ore concentrate is separated by a two-stage magnetic separation, which removes low grade tailings from the ore concentrate.  The tailings are pumped uphill to the Mile Post 7 disposal site.  The concentrate is then fed into hydro-separators followed by a final flotation upgrading accomplished with two flotation cells per grinding line.  Next, the concentrate proceeds to a central filtering facility, through which the moisture content in the concentrate is reduced and the final concentrate becomes ready for pelletizing.  The pelletizing process first feeds the ore concentrate, to which bentonite and starch has been added as a binder, into a balling drum.  The revolving action of the drum causes the concentrate to build up into green balls.  Next, the green balls are conveyed to one of four moving grates and enter into an accompanying high temperature furnace where they are heated to over 2,400°F and are hardened into the final pellet product.  From the four furnaces the pellets are conveyed to a dockside storage area with a 5-million ton storage capacity.  Northshore’s sheltered harbor at Silver Bay can handle lake-going vessels with capacities up to 55,000 tons.

Under the recently enacted Dodd-Frank Act, each operator of a coal or other mine is required to include certain mine safety results within its periodic reports filed with the SEC.  As required by the reporting requirements included in §1503(a) of the Dodd-Frank Act, in Cliffs’ Annual Report, Cliffs presented the following items regarding certain mining safety and health matters for the Northshore Mine.

In Cliffs’ Annual Report, Cliffs reported that the Northshore mine did not receive any flagrant violations under Section 110(b)(2) of the FMSH Act, no orders issued under Section 104(b) of FMSH Act, and no written notices of a pattern of violations, or the potential to have a pattern of such violations, under section 104(e) of the FMSH Act were received during the year ended December 31, 2017.  In addition, according to Cliffs there were no mining-related fatalities at the Northshore mine during the same period.

Following is a summary of the information listed above with respect to Northshore for the year ended December 31, 2017.

LEASEHOLD ROYALTIES

Northshore is obligated to pay to Mesabi Trust base overriding royalties and royalty bonuses on all pellets (and other iron ore products) produced from the Peters Lease Lands and the Cloquet Lease Lands (“Mesabi Ore”) and shipped from Silver Bay in each calendar year.  The royalties are based on prices per unit of product, volumes of product shipped and where on the escalating scale of royalties—2-1/2% on the first million long tons to 6% on shipments above four million long tons per calendar year—each shipment falls.

Base overriding royalties.  Base overriding royalties are calculated on the basis of an escalating scale of percentages of gross sales proceeds of iron ore shipped.  The applicable percentage is determined by reference to the tonnage of pellets (and other iron ore products) previously shipped in the then current calendar year, as follows:

Royalty bonuses.  Royalty bonuses are payable on all iron ore products produced from Mesabi Ore shipped from Silver Bay during a calendar quarter and sold at prices above the Adjusted Threshold Price.  The Adjusted Threshold Price was $53.80 for calendar year 2016 and $54.74 for calendar year 2017, and will be $55.74 for calendar year 2018.  The Adjusted Threshold Price is subject to adjustment (but not below $30 per ton) for inflation and deflation and is determined each year on the basis of the change in the Gross Domestic Product Implicit Price Deflator, a broad-based index of inflation and deflation published quarterly by the U.S.  Department of Commerce.

The amount of royalty bonuses payable for any calendar quarter is calculated on the basis of an escalating scale of percentages of the gross sales proceeds to Northshore of pellets produced from Mesabi Ore that are sold at prices above the Adjusted Threshold Price.  The applicable percentage is determined by reference to the amount by which the sales prices for a particular quantity of pellets exceeds the Adjusted Threshold Price, as follows:

Leasehold royalty example.  To illustrate the calculation of base overriding royalties and royalty bonuses, assume that no shipments of iron ore products were made during the first calendar quarter of 2018, and further assume that pellets were shipped from Silver Bay in the second and third calendar quarters of 2018 in the following tonnage quantities and rendering the following gross proceeds:

In this example, the base overriding royalties payable in respect of the second and third calendar quarters of 2018 would be as follows:

Based on the same example, the base overriding royalty percentage applicable for all iron ore products shipped in the fourth calendar quarter of 2018 would be 6%, because more than four million tons were shipped during the first three quarters.

Further, the royalty bonuses payable in respect of the second and third calendar quarters of 2018 would be as follows (with reference to the Adjusted Threshold Price (“ATP”) of $55.74

The above figures are provided only to illustrate the method for calculating base overriding royalties and royalty bonuses and do not indicate the amount of base overriding royalties or royalty bonuses the Trustees expect Mesabi Trust to earn in calendar 2018 or any other calendar or fiscal year.  Accordingly, the foregoing example illustrating the calculation of base overriding royalties and royalty bonuses should not be considered a prediction of the amount of base overriding royalties or royalty bonuses Mesabi Trust will receive.

Bonuses on other ore.  Northshore also must pay base overriding royalties and royalty bonuses on pellets produced from lands other than Mesabi Trust Lands (“Other Ore”) to the extent necessary to assure payment of base overriding royalties and royalty bonuses on at least 90% of the first four million tons of pellets shipped from Silver Bay in each calendar year, at least 85% of the next two million tons of pellets shipped therefrom in each calendar year, and at least 25% of all tonnage of pellets shipped therefrom in each calendar year in excess of six million tons.  Base overriding royalties and royalty bonuses payable on Other Ore can be recouped by Northshore out of base overriding royalties and royalty bonuses paid on Mesabi Ore.  The amount of base overriding royalties and royalty bonuses on Other Ore that can be recouped on any payment date cannot, however, exceed 20% of the amount of Mesabi Ore royalties and royalty bonuses which are otherwise payable on that payment date.

Advance royalties.  Northshore is obligated to pay Mesabi Trust advance royalties in equal quarterly installments.  The advance royalty was  $897,008 for calendar year 2016,  $912,725 for calendar year 2017,  and is $929,320 for calendar year 2018.  The amount of advance royalties payable is subject to adjustment (but not below $500,000 per annum) for inflation and deflation and is determined each year in the same manner as the Adjusted Threshold Price.  All payments of advance royalties are credited against payments of base overriding royalties and royalty bonuses payable on Mesabi Ore until fully recouped by Northshore.  The amount of advance royalties payable in respect of each calendar quarter constitutes the minimum overriding royalty amount payable by Northshore in respect of that calendar quarter.

Other leasehold royalty information.  Base overriding royalties and royalty bonuses are payable quarterly and accrue upon shipment, whether or not the actual sales proceeds for any shipment are received by Northshore.  The amount of base overriding royalties and royalty bonuses payable with respect to the first three quarters in any calendar year are determined on the basis of tonnage shipped during each such calendar quarter and the actual sales proceeds of such shipments, with an adjustment made to the royalties payable with respect to the last quarter in any calendar year to account for adjustments.

LAND TRUST AND FEE ROYALTIES

Mesabi Land Trust holds 20% interest as fee owner in the Peters Lease Lands and a 100% interest as fee owner in the Mesabi Lease Lands as lessor of the Mesabi Lease.  Mesabi Trust holds the entire beneficial interest in Mesabi Land Trust and is entitled to receive the net income of Mesabi Land Trust after payment of expenses.  Northshore is not obligated to pay royalties or rental to Mesabi Land Trust as fee owner of the non-mineral bearing Mesabi Lease Lands, a consideration having been paid in that respect at the inception of the Mesabi Lease.

Northshore is required to pay a base royalty to the fee owners in an amount which, at its option, is either (a) 11-2/3¢ per gross ton of crude ore it mines from the Peters Lease Lands, or (b) $0.0056 for each 1% of metallic iron ore natural contained in each gross ton of pellets it produces from the Peters Lease Lands and ships.  The base fee royalty

rate is adjusted up or down each quarter (but not below the base royalty specified above) by adding or subtracting an amount to be determined by reference to changes in Lower Lake Mesabi Range pellet prices and the All Commodities Producer Price Index.  The adjustment factor is computed by multiplying the base fee royalty rate specified above by a percentage that is the sum of (a) one-half of the percentage change, if any, by which the then prevailing price per iron unit of Mesabi Range taconite pellets delivered by rail or vessel at Lower Lake Erie ports exceeds 80.5¢ (the price per iron unit in effect in January 1982), plus (b) one-half of the percentage change, if any, by which the All Commodities Producer Price Index exceeds 295.8 (the level of the Index for December 1981).  Fee royalties aggregating $519,327 with respect to crude ore mined by Northshore were earned by Mesabi Land Trust during the fiscal year ended January 31, 2018.

TRUST EXPENSES

Total Trust Expenses

Total Trust expenses for the fiscal year ended January 31, 2018 were $1,071,990, representing a decrease of $51,432, or 4.6%, from the $1,123,422 of total Trust expenses in fiscal 2017.  The decrease in Trust expenses from fiscal 2018 to fiscal 2017 was due primarily to a decrease in legal expenses to the Trust as discussed further in the Trust Legal Expenses section below.

Total Trust expenses for the fiscal year ended January 31, 2017 were $1,123,422, representing a decrease of $39,245, or 3.4%, from the $1,162,667 of total Trust expenses in fiscal 2016.  The decrease in Trust expenses from fiscal 2017 to fiscal 2016 was due primarily to a decrease in legal expenses to the Trust as discussed further in the Trust Legal Expenses section below.

Trust Legal Expenses

Mesabi Trust paid Fox Rothschild LLP (formerly Oppenheimer Wolff & Donnelly LLP (“Oppenheimer”)) $366,205 for legal services provided to the Trust during the fiscal year ended January 31, 2018.  Comparatively, Mesabi Trust paid Fox Rothschild LLP and Oppenheimer $399,737 and $494,057 for legal services provided to the Trust during fiscal years ended January 31, 2017 and January 31, 2016, respectively.

In each of the last three fiscal years, Fox Rothschild and Oppenheimer represented the Trust and assisted the Trustees in the preparation and filing of the Trust’s current, periodic and annual reports with the Securities and Exchange Commission and related securities law compliance.  Fox Rothschild and Oppenheimer also advised the Trust on various other legal matters, which included royalty reporting matters and matters related to inquiries from third parties in the ordinary course of the Trust’s administration.  The total amount of Fox Rothschild and Oppenheimer’s legal fees for services rendered during fiscal 2018 decreased approximately $33,532, or 8.4% as compared to fiscal 2017.  The decrease in legal fees in fiscal 2018, as compared to fiscal 2017, resulted primarily from the increased legal work in fiscal 2017 relating to royalty reporting matters, more meetings, current reporting related to difficult economic conditions in the iron ore and steel industries generally, and as it impacted Cliffs and Northshore operations in particular.

The total amount of Oppenheimer’s legal fees for services rendered during fiscal 2017 decreased approximately $94,320, or 19.1% as compared to fiscal 2016.  The decrease in legal fees in fiscal 2017, as compared to fiscal 2016, resulted primarily from the increased legal work in fiscal 2016 as compared to fiscal 2017, which related to royalty reporting matters, more meetings, current reporting related to difficult economic conditions in the iron ore and steel industries generally, and as it impacted Cliffs and Northshore operations in particular.

Total Trust expenses by category for fiscal 2018,  2017 and 2016 are set forth in the table below.

UNALLOCATED RESERVE

Each quarter, as authorized by the Agreement of Trust, the Trustees will reevaluate all relevant factors including all costs, expenses, obligations, and present and future liabilities of the Trust (whether known or contingent) in determining an appropriate level of unallocated reserve for the Trust in order to be in position to meet the current and ongoing challenges in the iron ore and steel industries.  The actual amount of the Unallocated Reserve will fluctuate from time to time and may increase or decrease from its current level.  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 received quarterly and the level of Trust expenses that the Trustees anticipate occurring in subsequent quarters.  Pursuant to the Agreement of Trust, the Trust makes 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 5 for further information.  See “Current Developments” — “Review of Unallocated Reserve”  in this Annual Report.  The amount of future royalty income available for distribution will be subject to the volume of iron ore product shipments and the dollar level of sales by Northshore.  Shipping activity is greatly reduced during the winter months and economic conditions, particularly those affecting the steel industry, may adversely affect the amount and timing of such future shipments and sales.  It is possible that future negative price adjustments could offset, or even eliminate, 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 discussion under the heading “Risk Factors” in this Annual Report.

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 reserves at a prudent level, given the unpredictable nature of the iron ore industry, the Trust’s dependence on the actions of Cliffs and Northshore, and the fact that the Trust essentially has no other liquid assets.

CERTIFICATES OF BENEFICIAL INTEREST

The Mesabi Trust’s Certificates of Beneficial Interest are traded on the New York Stock Exchange.  Distributions declared to Unitholders during the fiscal year ended January 31, 2018 totaled $33,193,626 as compared to $8,396,806 during fiscal year ended January 31, 2017, and $1,180,801 during the fiscal year ended January 31, 2016.  The Trust paid Unitholders distributions of $2.53 per Unit for the fiscal year ended January 31, 2018, compared with distributions of $0.64 and $0.09 per Unit for the fiscal years ended January 31, 2017 and 2016, respectively.

During the past two fiscal years, the market ranges of the certificates for each quarterly period and the distributions declared for such quarterly periods were as follows:

As of the close of business on April 10, 2018, the beneficial interest in Mesabi Trust was represented by 13,120,010 Units, 358,983 Units of which were held by 845 holders of record.

THE TRUSTEES

The name and address of each Trustee and the principal occupation of each individual Trustee are as follows:

INDEX TO FINANCIAL STATEMENTS

TRUSTEES’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Mesabi Trustees are responsible for establishing and maintaining adequate internal control over financial reporting for Mesabi Trust.  The Trust’s internal control system was designed to provide reasonable assurance to the Trustees regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Mesabi Trustees assessed the effectiveness of the Trust’s internal control over financial reporting as of January 31, 2018.  In making this assessment, they used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013).  Based on their assessment, the Trustees believe that, as of January 31, 2018, the Trust’s internal control over financial reporting is effective, based on those criteria.

Baker Tilly Virchow Krause, LLP, the Trust’s independent registered public accounting firm, has issued an audit report on its assessment of the Trust’s internal control over financial reporting for the fiscal year ending January 31, 2018.  This report appears immediately below.