MESABI TRUST Announces Arbitration Final Award

Rhea-AI Summary

Mesabi Trust (MSB) has won a significant arbitration award against Northshore Mining Company and Cleveland-Cliffs Inc. The American Arbitration Association (AAA) has awarded Mesabi Trust $59,799,977 in damages for underpaid royalties from 2020 to early 2022, plus $11,288,269 in pre-award interest. The total award of over $71 million must be paid by October 6, 2024. The arbitration panel also approved Mesabi Trust's ongoing right to documentation for verifying royalty calculations. However, the Trust's request for declaratory relief regarding the timing of royalty obligation accrual was denied. This outcome resolves a dispute initiated by Mesabi Trust in October 2022 over royalty underpayments related to iron ore pellet sales pricing.

Positive

• Mesabi Trust awarded $59,799,977 in damages for underpaid royalties
• Additional $11,288,269 awarded in pre-award interest
• Total award of over $71 million to be paid by October 6, 2024
• Arbitration panel approved Trust's right to ongoing documentation for royalty verification

Negative

• Trust's request for declaratory relief on timing of royalty obligation accrual was denied

Insights

Legal Expert

The arbitration outcome is a significant win for Mesabi Trust, resulting in a substantial $59,799,977 award for underpaid royalties, plus $11,288,269 in pre-award interest. This total award of over $71 million represents a major financial boost for the Trust. The decision validates Mesabi's claim that Cliffs and Northshore failed to use the highest-priced arm's-length iron ore pellet sale for royalty calculations. However, the denial of declaratory relief regarding royalty obligation accrual timing is a minor setback. The stipulated Consent Award ensuring ongoing documentation access is important for future royalty verification. This ruling sets a precedent for proper royalty calculations in the mining industry and underscores the importance of transparent financial reporting between lessees and lessors.

Financial Analyst

This arbitration award significantly improves Mesabi Trust's financial position. The $71 million windfall, representing underpaid royalties and interest, will substantially boost the Trust's cash flow and potentially lead to increased distributions to unitholders. With iron ore prices fluctuating, this award provides a cushion against market volatility. The 10% simple interest rate on the award is notably higher than current market rates, indicating a punitive aspect to the decision. Investors should watch for potential impacts on Cleveland-Cliffs' financials, as this unexpected liability could affect their short-term liquidity. Long-term, this ruling may lead to more accurate royalty calculations, potentially increasing Mesabi's regular income stream. The Trust's proactive approach in pursuing these claims demonstrates strong governance and commitment to unitholder value.

Mining Industry Expert

This arbitration result highlights the complexities in iron ore pricing and royalty calculations within the mining sector. The dispute centered on using the highest-priced arm's-length iron ore pellet sale for royalty calculations, a practice that could become industry standard following this ruling. The significant award underscores the potential financial impact of pricing methodologies in mining royalty agreements. This case may prompt other mining trusts and royalty holders to scrutinize their agreements more closely. The decision to grant Mesabi ongoing access to documentation for royalty verification is crucial, as it enhances transparency in the lessor-lessee relationship. This could set a precedent for increased disclosure in the mining industry, potentially leading to more equitable royalty arrangements and fewer disputes in the future.

NEW YORK--(BUSINESS WIRE)-- AAA Arbitration Final Award

As previously reported, on October 14, 2022, Mesabi Trust initiated arbitration against Northshore Mining Company (“Northshore”), the lessee/operator of the leased lands, and its parent, Cleveland-Cliffs Inc. (“Cliffs”), with the American Arbitration Association (“AAA”). The Trust sought an award of damages relating to Cliffs’ and Northshore’s underpayment of royalties in 2020, 2021, and the first four months of 2022 by virtue of Cliffs’ and Northshore’s failure to use the highest priced arm’s-length iron ore pellet sale from the preceding four quarters in pricing certain pellet shipments from 2020 through the first four months of 2022. The Trust also sought declaratory relief related to the Trust’s entitlement to certain documentation and to the time when Cliffs’ and Northshore’s royalty obligations accrue.

The evidentiary hearing was completed before a panel of three arbitrators in March 2024 under the commercial rules of the AAA. Post-hearing briefs were exchanged in May 2024. Post-hearing oral arguments and final submissions were concluded in June 2024. The Trust received the final award on September 6, 2024, which unanimously awarded the Trust damages in the amount of $59,799,977 for underpaid royalties in 2020, 2021 and the first four months of 2022, plus pre-award interest in the amount of $11,288,269, calculated at the rate of 10% simple interest per annum from the date of the initial demand through September 1, 2024, and continuing to accrue until paid. Pursuant to the award, Cliffs and Northshore must pay the Trust the amounts specified in the Award by no later than October 6, 2024. The Tribunal approved the parties’ stipulated Consent Award approving the Trust’s ongoing entitlement to certain documentation related to verifying royalty calculations. The Tribunal denied the Trust’s request for declaratory relief regarding the time at which Cliffs’ and Northshore’s royalty obligations accrue.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240910020258/en/

Mesabi Trust SHR Unit

Deutsche Bank Trust Company Americas

904-271-2520

Source: Mesabi Trust

FAQ

What was the total amount awarded to Mesabi Trust (MSB) in the arbitration?

Mesabi Trust was awarded a total of over $71 million, consisting of $59,799,977 in damages for underpaid royalties and $11,288,269 in pre-award interest.

When must Cleveland-Cliffs and Northshore pay the arbitration award to Mesabi Trust (MSB)?

Cleveland-Cliffs and Northshore must pay the arbitration award to Mesabi Trust by October 6, 2024.

What period did the underpaid royalties cover in the Mesabi Trust (MSB) arbitration case?

The underpaid royalties covered the period from 2020 through the first four months of 2022.

What was the interest rate applied to the pre-award interest in the Mesabi Trust (MSB) arbitration?

The pre-award interest was calculated at a rate of 10% simple interest per annum.