Mesabi Trust

jamesmith

When searching around, I found Mesabi Trust (ticker: MSB). It is an interesting company, (or trust I should say) formed in 1961. It is setup to derive income from Peter Mitchell Mine (an iron mine) located near Babbitt, Minnesota and distribute all income to shareholders.

The mine is operated by Northshore Mining Company, a subsidiary of Cleveland-Cliffs (ticker: CCI). Northshore mines the ore containing 21% recoverable iron, crushes it and separate the iron from the non-metallic and forms it into iron pellets which are shipped for use in steel-producing blast furnaces of customers of CCI, the largest iron pellets producer in North America.
Northshore pays Mesabi Trust in two ways.
1) It pays a very small royalty based on tons of ores extracted
2) It pays based on the selling price of pettets

The Trust is a pass-through entity (no employee, low maintenance, all income are distributed to shareholders), and its revenues are not taxed to the Trust but are taxed to the shareholders. The Trust is not permitted to engage in any business other than the collection and distribution of royalties and payments of expenses.

The Trust will end 21 years AFTER the death of the last survivor of 25 individuals living at the inception of the Trust. Age of the youngest survivor is 52. Which means the trust is created when he or she is born.

According to World Health Organisation (2011 data), average life expectancy in US for male is 76, that give us 45 more years to collect dividend from Mesabi Trust.
average life expectancy in US for female is 81, that gives us 50 more years. To be conservative, I will use 45 year.

The main risk is from Iron Ore Pellets Prices, I am having trouble finding historical data, only place I found is: http://www.infomine.com/ChartsAn ... &dr=1y&cd=1
It only has data from 2009.

Historical dividend payments can be found here: http://dividata.com/stock/MSB/dividend   or   http://www.dailyfinance.com/quote/nyse/mesabi-trust/msb
I have no way to predict future iron ore prices, I am going to estimate by simply averaging historical dividends.
Calculations I did are based on data from 10/26/1995 to 7/26/2013
Max average is from 10/28/2008 with $0.855 per quarter
Min average is from  4/26/2007 with $0.2525 per quarter
Average of averages is $0.3895 per quarter.
Given that value of MSB is the present value of all the dividends it pays out through its life time, we can estimate its "intrinsic value" with a estimated discount rate. Let's use $0.3895, that gives us $1.5582 annual dividend.
discount  value
10%         15.37
9%         16.95
8%         18.87
7%         21.2
6%         24.08
5%         27.69
4%        32.29
3%          38.2
2%         45.95
1%        56.24
0%        70.12

With the current price of MSB at $20.97, market is using a 7% discount rate for future dividend incomes. We can see discount rate as some combination of risk free rate, risk of iron price fluctuation, or your required rate of return.
Just for fun, 30 year treasury rate is at 3.7% now, if we use this as discount, we will get $33.9.
Its better than treasury but I would say 7% is a fair rate, I will be much more interested if price comes down to $15-$16 range.

jamesmith

I should also mention that another risk is if iron prices are down significantly and Northshore stop mining, shareholders will receive no dividend during this period. Even if this happens, I don't think mining will be stopped for a prolonged period of time. And it may create a good buying opportunity.

wsjboy

MSB, fina,mesabi trust,diversfd invstmnts  MSB   yahoo  finviz  google  fool  
pe 9.32,alpha -15.80,beta 1.92,a_vol 58, div 8.77 130726,insi 0.32 0.0,inst 15.9 -3.07,
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Mesabi Trust operates as a royalty trust in the United States. The company produces iron ore pellets. It holds interest in the Peter Mitchell mine located in the Mesabi Iron Range near Babbitt, Minnesota. The company holds various agreements with the Northshore Mining Company that mines iron ore, which is in the form of taconite, crushes it, separates the iron particles from the non-metallic, and forms the resulting concentrate into pellets that are shipped for use in steel-producing blast furnaces of customers of CCI, a mining company that produces iron pellets in North America. Mesabi Trust was founded in 1919 and is based in New York, New York.
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jamesmith

wsjboy 发表于 2013-9-3 11:12 AM
MSB, fina,mesabi trust,diversfd invstmnts  MSB   yahoo  finviz  google  fool  
pe 9.32,alph ...

It is not formed at 1919.

"Mesabi Trust is a royalty trust organized under the laws of the State of New York in 1961 to derive income from an iron mine (the Peter Mitchell Mine) located near Babbitt, Minnesota, at the eastern end of the Mesabi Iron Range."
source:  http://www.mesabi-trust.com/



I found another trust that is setup similarly, it is Great Northern Iron Ore Properties (Ticker: GNI). GNI website: http://www.gniop.com/
GNI is formed at  December 7, 1906. its last survivor died some years ago, and the Trust will dissolve on April 6, 2015. That means there are only 7 more quarterly dividend payments.
Mr. Market valuing it at $72.23 is extremely irrational.
GNI dividend history: http://www.nasdaq.com/symbol/gni/dividend-history

Last dividend is $2.5, that gives us $17.5 without discounting. On GNI website (http://www.gniop.com/termination.html), it stated that it will pay a final distribution of $8.39 per share when it is dissolved.
That gives us $25.89.

Dividend flutuates with commodity price, it's highest quarterly dividend is $5.75. Even in best scenario, it's intrinsic value is $48.64.
Either I am missing something huge, or speculators are playing game of musical chairs to see who can get the dividend then get out fast.

wsjboy

jamesmith 发表于 2013-9-3 06:12 PM
It is not formed at 1919.

"Mesabi Trust is a royalty trust organized under the laws of the ...

1919 was copied from yahoo. The description was supposed written by the company(trust). I have no idea where the mistake came from.

wsjboy

It is an interesting way for rich people to leave children income without give them in full payment.

wsjboy

GNI: when it is dissolved, the share worth nothing?

wsjboy

GNI, basm,great northern iron ore properties,industrl metls&minrls  GNI   yahoo  finviz  google  fool  
pe 6.99,alpha -0.50,beta 0.50,a_vol 13, div 13.82 130626,er 131021,insi 0.0 0.0,inst 4.3 -23.67,
=================
Great Northern Iron Ore Properties, a conventional nonvoting trust, owns and leases mineral and non-mineral properties on the Mesabi Iron Range in northeastern Minnesota. It owns mineral interests on the Mesabi Iron Range formation that represent 12,033 acres, including approximately 9,895 acres are under lease and 2,138 acres are unleased. The company was founded in 1906 and is based in Saint Paul, Minnesota.
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wsjboy

It owns that much properties, when it dissolves, who own those property?

jamesmith

wsjboy 发表于 2013-9-3 11:16 PM
It owns that much properties, when it dissolves, who own those property?

They goes to ConocoPhillips for free.  source: http://www.gniop.com/termination.html

wsjboy

jamesmith 发表于 2013-9-4 08:10 AM
They goes to ConocoPhillips for free.  source: http://www.gniop.com/termination.html

interesting!

Should we buy some COP? It probably has already priced in. I guess.

jamesmith

wsjboy 发表于 2013-9-4 07:14 AM
interesting!

Should we buy some COP? It probably has already priced in. I guess.

COP has a market cap of >80 Billion, I am not sure how much impact it will be.

When the trust is dissolved, they will probably need to pay some fees to lawyers then distribute the rest of money to shareholders
As of December 2012, without factoring in any expenses, each share will get $8.39 when the trust terminate. I am not sure how much this number increased this year.

It is interesting how rich people leave wealth for their kids. I am sure a lot of thought have been put into estate planning.

wsjboy

jamesmith 发表于 2013-9-4 10:26 AM
COP has a market cap of >80 Billion, I am not sure how much impact it will be.

When the trust  ...

你真仔细，我稍微搜一下，前不久还有不少专家推荐GNI，因为高dividend。。。所以GNI股价上涨不少。。。真是往火盆里跳，还不知道

wsjboy

很高兴它没有进入我的视野，因为太低·的trading volume， 否则也可能上当