Forward-Looking Statements

Certain information included in this Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. All such forward-looking statements, including those statements estimating iron ore pellet production or shipments, are based on information 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," "predict," "intend," "believe," "anticipate," "expect," "estimate," "continue," "potential," "plan," "should," "assume," "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. These risks and uncertainties include volatility of iron ore and steel prices, product supply and demand, competition, regulation or government action, litigation and uncertainties about estimates of reserves. Further, substantial portions of royalties earned by Mesabi Trust are based on estimated prices that are subject to interim and final adjustments which can be positive or negative and are dependent in part on multiple price and inflation index factors under agreements to which Mesabi Trust is not a party and that are not known until after the end of a contract year. For a discussion of the factors, including, without limitation, those that could materially and adversely affect Mesabi Trust's actual results and performance, see "Risk Factors" in Part I - Item 1A of Mesabi Trust's Annual Report on Form 10-K for the year-ended January 31, 2008, as updated by Part II, Item 1A of this Quarterly Report on Form 10-Q. Mesabi Trust undertakes no obligation, other than that imposed by law, to make any revisions to the forward-looking statements contained in this filing or to update them to reflect circumstances occurring after the date of this filing.

Background

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

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

The Trustees do not intend to expand their responsibilities beyond those permitted or required by the Agreement of Trust, the Amendment to the Agreement of Trust dated October 25, 1982 (the "Amendment"), and those required under applicable law. Mesabi Trust has no employees, but it engages independent consultants to assist the Trustees in, among other things, monitoring the volume and sales prices of iron ore products shipped from Silver Bay, Minnesota, based on information supplied to the Trustees by Northshore Mining Company ("Northshore"), the lessee/operator of the Mesabi Trust lands, and its parent company Cliffs Natural Resources Inc ("Cliffs"). References to Northshore in this quarterly report, unless the context requires otherwise, are applicable to Cliffs as well.

Leasehold royalty income constitutes the principal source of Mesabi 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 leasehold royalty income:

† Base overriding royalties. Base overriding royalties have historically constituted the majority of Mesabi Trust's royalty income. Base overriding royalties are determined by both the volume and selling price of iron ore products shipped. Northshore is obligated to pay Mesabi Trust base overriding royalties in varying amounts, based on the volume of iron ore products shipped. Base overriding royalties are calculated as a percentage of the gross proceeds of iron ore products produced at Mesabi Trust lands (and to a limited extent other lands) and shipped from Silver Bay, Minnesota. The percentage ranges from 2-1/2% of the gross proceeds for the first one million tons of iron ore products so shipped annually to 6% of the gross proceeds for all iron ore products in excess of 4 million tons so shipped annually. Base overriding royalties are subject to price adjustments under the Cliffs Pellet Agreements and, as described elsewhere in this report, such adjustments may be positive or negative.

† Royalty bonuses. Mesabi Trust earns royalty bonuses when iron ore products shipped from Silver Bay are sold at prices above a threshold price. The royalty bonus is based on a percentage of the gross proceeds of product shipped from Silver Bay and sold at prices above a threshold price. The threshold price is adjusted (but not below $30.00 per ton) on an annual basis for inflation and deflation (the "Adjusted Threshold Price"). The Adjusted Threshold Price was $45.98 per ton for calendar year 2007 and is $47.43 for calendar year 2008. The royalty bonus percentage ranges from 1/2 of 1% of the gross proceeds (on all tonnage shipped for sale at prices between the Adjusted Threshold Price and $2.00 above the Adjusted Threshold Price) to 3% of the gross proceeds (on all tonnage shipped for sale at prices $10.00 or more above the Adjusted Threshold Price). Royalty bonuses are subject to price adjustments under the Cliffs Pellet Agreements and, as described elsewhere in this report, such adjustments may be positive or negative.

† Fee royalties. Fee royalties have historically constituted a smaller component of the Trust's total royalty income. Fee royalties are payable to the Mesabi Land Trust, a Minnesota land trust, which holds a 20% interest as fee owner in the Amended Assignment of Peters Lease. Mesabi Trust holds the entire beneficial interest in the Mesabi Land Trust for which U.S. Bank N.A. acts as the corporate trustee. Mesabi Trust receives the net income of the Mesabi Land Trust, which is generated from royalties on the amount of crude ore mined after the payment of expenses to U.S. Bank N.A. for its services as corporate trustee. Crude ore is the source of iron oxides used to make iron ore pellets and other products. The fee royalty on crude ore is based on an agreed price per ton, subject to certain indexing.

† Minimum advance royalties. Northshore's obligation to pay base overriding royalties and royalty bonuses with respect to the sale of iron ore products generally accrues upon the shipment of those products from Silver Bay. However, regardless of whether any shipment has occurred, under the terms of the Amended Assignment Agreements, Northshore is obligated to pay to Mesabi Trust a minimum advance royalty. Each year, the amount of the minimum advance royalty is adjusted (but not below $500,000 per annum) for inflation and deflation in accordance with the Amended Assignment Agreements. The minimum advance royalty was $766,510 for calendar year 2007 and is $790,721 for calendar year 2008. Until overriding royalties (and royalty bonuses, if any) for a particular year equal or exceed the minimum advance royalty for the year, Northshore must make quarterly payments of up to 25% of the minimum advance royalty for the year. Because minimum advance royalties are essentially prepayments of base overriding royalties and royalty bonuses earned each year, any minimum advance royalties paid in a fiscal quarter are recouped by credits against base overriding royalties and royalty bonuses earned in later fiscal quarters during the year.

Under the relevant agreements, Northshore has the right to mine and ship iron ore products from lands other than Mesabi Trust lands. Based on its current mining and engineering plan, Northshore alone determines whether to conduct mining operations on Trust and/or such other lands. 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.

Northshore is obligated to make royalty payments in January, April, July and October of each year based on shipments of iron ore products from Silver Bay during each calendar quarter. The Trust accounts and reports accrued income receivable based on shipments during the last month of the Trust's fiscal quarter (April, July, October and January) even though such accrued income receivable is not available for distribution to unitholders until it is received by the Trust. The Trust declares distributions each year in April, July, October and January. Distributions are declared after receiving notification from Northshore Mining Company as to the amount of royalty income that is expected to be paid to the Trust based on shipments through the end of each calendar quarter. Accordingly, distributions declared by the Trust are not equivalent to the Trust's Net Income during the periods reported in this quarterly report on Form 10-Q.

Deutsche Bank Trust Company Americas, the Corporate Trustee, performs certain administrative functions for Mesabi Trust. The Trust maintains a website at www.mesabi-trust.com. The Trust makes available (free of charge) its annual, quarterly and current reports (and any amendments thereto) filed with the Securities and Exchange Commission (the "SEC") through its website as soon as reasonably practicable after electronically filing or furnishing such material with or to the SEC.

Results of Operations

Comparison of Iron Ore Pellet Production and Shipments for the Three and Nine Months Ended October 31, 2008 and October 31, 2007

As shown in the table below, production of iron ore pellets at Northshore from Mesabi Trust lands during the fiscal quarter ended October 31, 2008 totaled approximately 1.0 million tons and actual shipments over the same period totaled approximately 1.5 million tons. By comparison, actual pellet production during the same period in 2007 totaled approximately 1.33 million tons, and actual shipments approximated 1.36 million tons.

                     Pellets Produced from   Shipments of Pellets from
                          Trust Lands               Trust Lands
Three Months Ended          (Tons)                    (Tons)
 October 31, 2008                  995,398                   1,503,256
 October 31, 2007                1,330,789                   1,357,247

The 25.2% decrease in production, as compared to the prior comparable period, is partially attributable to a reduction in production due to scheduled maintenance and repairs at Northshore. The 10.7% increase in shipments from Trust lands is attributable to the fact that Northshore shipped more iron ore products from lands owned by Mesabi Trust during the three months ended October 31, 2008 as compared to the three months ended October 31, 2007. See the discussion below under the heading "Recent Developments, Idling of Pellet Furnaces" and in Part II, Item 1A "Risk Factors," for more information about Cliffs' announcement of the idling of two pellet furnaces at Northshore and the potential impact on the Trust.

For the nine months ended October 31, 2008, production of iron ore pellets at Northshore from Mesabi Trust lands totaled approximately 3.69 million tons, and actual shipments over the same period totaled approximately 5.09 million tons. By comparison, actual pellet production during the same period in 2007 totaled approximately 3.54 million tons, and actual shipments approximated 2.95 million tons.

                    Pellets Produced from   Shipments of Pellets from
                         Trust Lands               Trust Lands
Nine Months Ended          (Tons)                    (Tons)
October 31, 2008                3,685,182                   5,092,258
October 31, 2007                3,539,856                   2,946,545

Production for the nine months ended October 31, 2008 exceeded production during the same period ended October 31, 2007 by approximately 4.1%. Shipments for the nine months ended October 31, 2008 increased 72.8% compared to the nine months ended October 31, 2007.

Comparison of Royalty Income for the Three and Nine Months Ended October 31, 2008 and October 31, 2007

Total royalty income for the three months ended October 31, 2008 was $11,778,367. This represents an increase of approximately 76.1% as compared to the comparable prior period. Base overriding royalties increased 90.2% to $7,722,825 and bonus royalties increased 58.2% to $ 3,940,960.

The increase in base overriding royalties is the result of a significant increase in the average sales price per ton of iron ore pellets, and a substantial increase in the volume of shipments of iron ore pellets from Trust lands through October 31, 2008. The substantial increase in the volume of shipments resulted in the shipment of additional tons at higher royalty rates, as compared to the three months ended October 31, 2007, thereby contributing to the higher base royalty payment. Similarly, the increase in bonus royalties is primarily due to higher contract prices for shipped iron ore products resulting in an increased bonus royalty amount, which is calculated by multiplying the applicable royalty rate by the difference between the sales price per ton and the adjusted threshold price for 2008 of $47.43 per ton. Fee royalties paid to the Mesabi Land Trust decreased slightly for the three months ended October 31, 2008, as compared to October 31, 2007. The following table summarizes the components of the total royalty income received by Mesabi Trust during the three months ended October 31, 2008 and October 31, 2007.

                                             Three Months Ended October 31,
                                                2008                 2007
Base overriding royalties                 $       7,722,825    $      4,059,893
Bonus royalties                                   3,940,960           2,491,383
Minimum advance royalty paid (recouped)                   -                   -
Fee royalties                                       114,582             138,849
Total royalty income                      $      11,778,367    $      6,690,125

Total royalty income for the nine months ended October 31, 2008 increased 151% from the prior comparable period to $32,392,640. Base overriding royalties increased 178% to $19,635,564 and bonus royalties also increased 126% to $12,350,997 for the nine months ended October 31, 2008. The increase in base overriding royalties received by the Trust is the result of higher contract prices for shipped iron ore products and significantly higher volume of total shipments of iron ore from Trust lands through October 31, 2008, each as compared to the prior comparable period. The increase in bonus royalties received by the Trust is also due to higher contract prices for shipped iron ore resulting in a substantial increase in the bonus royalty amount, which is calculated by multiplying the applicable royalty rate by the difference between the sales price per ton and the adjusted threshold price for 2008 of $47.43 per ton. Fee royalties paid to the Mesabi Land Trust increased approximately 13.6% to $406,079 for the nine months ended October 31, 2008. The following table summarizes the components of Mesabi Trust's total royalty income for the nine months ended October 31, 2008 and October 31, 2007.

                                            Nine Months Ended October 31,
                                                2008              2007
Base overriding royalties                 $     19,635,564    $   7,063,974
Bonus royalties                                 12,350,997        5,474,730
Minimum advance royalty paid (recouped)                  -                -
Fee royalties                                      406,079          357,598
Total royalty income                      $     32,392,640    $  12,896,302

Based on information that has been made publicly available by Cliffs and certain of Cliffs' customers that are party to the Cliffs Pellet Agreements, the Trustees understand that worldwide demand for both steel and iron ore products has decreased significantly during the fourth quarter of 2008. While the Trustees are unable to predict the impact this decrease in demand will have on prices of iron ore products, for the reasons discussed below under the heading "Recent Developments, Idling of Pellet Furnaces" and in Part II, Item 1A "Risk Factors," the Trustees believe that Mesabi Trust is likely to encounter a significant decrease in total royalty income for the three months ending January 31, 2009 which could extend into calendar year 2009.

Comparison of Trust Income and Expenses for the Three and Nine Months Ended October 31, 2008 and October 31, 2007

Net income for the fiscal quarter ended October 31, 2008 was $11,657,311, an increase of approximately 76.8% as compared to the quarter ended October 31, 2007. The significant increase in net income is the result of increased base overriding royalties and bonus royalties. Interest income received by Mesabi Trust increased 37.3% as compared to the prior comparable period primarily due to an increase in the total investments held by Mesabi Trust. Expenses increased 26.3% from the prior comparable period to $138,805, primarily due to slightly higher legal and accounting fees incurred in the administration of the Trust. The following is a summary of Mesabi Trust's income and expenses for the three months ended October 31, 2008 and October 31, 2007.

                          Three Months Ended October 31,
                             2008                 2007
Total royalty income   $      11,778,367    $      6,690,125
Interest income                   17,749              12,930
Gross income                  11,796,116           6,703,055

Expenses                         138,805             109,924
Net income             $      11,657,311    $      6,593,131

Net income for the nine months ended October 31, 2008 was $31,867,280, an increase of approximately 156% as compared to the nine months ended October 31, 2007. This increase is primarily attributable to significantly higher base overriding royalties and bonus royalties, as compared to the nine months ended October 31, 2007. Interest income received by Mesabi Trust increased 35.9% from the prior comparable period due to an increase in the total investments held by Mesabi Trust. Expenses increased 23.2% from the prior comparable period to $562,446. The following table summarizes Mesabi Trust's income and expenses for the nine months ended October 31, 2008 and October 31, 2007.

                         Nine Months Ended October 31,
                             2008              2007
Total royalty income   $     32,392,640    $  12,896,302
Interest income                  37,086           27,293
Gross income                 32,429,726       12,923,595

Expenses                        562,446          456,707
Net income             $     31,867,280    $  12,466,888

Unallocated Reserve

The Unallocated Reserve as of October 31, 2008 was $2,432,878, a decrease of 8.2% as compared to the $2,651,353 of Unallocated Reserve as of October 31, 2007. The decrease in the Unallocated Reserve is due to a decrease in the accrued income receivable of the Trust at the end of the fiscal quarter ended October 31, 2008. As of October 31, 2008, $1,551,874, or 64% of the Unallocated Reserve was accrued income receivable, representing royalties not yet received by the Trust but anticipated to be received from Northshore in January 2009 for shipments during the fourth calendar quarter. By comparison, at October 31, 2007, $1,958,783, or approximately 74% of the Unallocated Reserve was accrued revenue. The 20.8% decrease in accrued income receivable is based upon reported lessee shipping activity for the month of October 2008. Accrued income receivable is reflected on the balance sheet at October 31, 2008. The Trustees anticipate that substantially all of the $1,551,874 in accrued income receivable will be distributed to Unitholders in January 2009, after the Trustees provide for expenses and unexpected loss contingencies.

The Trustees have determined that a portion of the Unallocated Reserve, usually within the range of $500,000 to $1,000,000 or such other amount as the Trustees may deem prudent, should be maintained for unexpected loss contingencies. As of October 31, 2008, $881,004, or 36% of the Unallocated Reserve, was represented by unallocated cash and U.S. Government securities, whereas, at October 31, 2007, $692,570, or 26% of the Unallocated Reserve was unallocated cash and U.S. Government securities.

The Trust's Unallocated Reserve as of October 31, 2008 increased 47% or $772,857 as compared to the Unallocated Reserve at January 31, 2008. This increase in the Unallocated Reserve is primarily due to an increase in the accrued income receivable based on shipments from Northshore during the month of October 2008. At January 31, 2008, approximately 58% of the Unallocated Reserve or $959,925 was represented by accrued income receivable while 42% or $700,096 was represented by unallocated cash and U.S. Government securities.

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 intended that future distributions will be highly dependent upon royalty income as it is received and the level of Trust expenses. 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. 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 reserve for unexpected loss contingencies at a prudent level, given the unpredictable nature of the iron ore industry, the Trust's dependence on the actions of the lessee/operator, and the fact that the Trust essentially has no other liquid assets.

Recent Developments

Production and Shipments. In its Form 10-Q filed October 31, 2008, Cliffs reported that production at Northshore for the three months ended September 30, 2008 was 1.6 million tons and total production for the nine months ended September 30, 2008 was approximately 4.4 million tons. Comparatively, production of iron ore pellets at Northshore for the three and nine months ended September 30, 2007 was 1.3 million tons and 3.9 million tons, respectively. In its Form 10-Q filed October 31, 2008, Cliffs reported that it is estimating total production of 5.5 million tons of iron ore pellets at Northshore during calendar year 2008, reflecting a downward adjustment from the 5.7 million tons it previously estimated. Northshore has not provided the Trustees with an estimate of total expected shipments of iron ore pellets for calendar year 2008.

Even though Northshore has not provided the Trustees with an estimate of total expected shipments of iron ore pellets for the remainder of calendar year 2008, the 20.8% decrease in accrued income receivable, from $1,958,783 as of October 31, 2007 to $1,551,874 as of October 31, 2008, represents a significant decline in shipments from Trust lands during the month of October 2008. Based on the current global economic environment and for the reasons discussed below under the heading "Recent Developments, Idling of Pellet Furnaces" and in Part II, Item 1A "Risk Factors," the Trustees believe that Mesabi Trust is likely to encounter a potentially significant decrease in total royalty income for the three months ending January 31, 2009 as compared to the three months ended January 31, 2008.

During calendar years 2007, 2006, 2005, 2004 and 2003, the percentage of shipments of iron ore products from Mesabi Trust lands was approximately 88.2%, 90.9%, 90.1%, 92.0% and 95.5%, respectively, of total shipments. Northshore has not advised the Trustees as to the percentage of iron ore products from Mesabi Trust lands it anticipates shipping in calendar year 2008. See the description of the uncertainty of market conditions in the iron ore and steel industry under "Important Factors Affecting Mesabi Trust" below and the information under the heading "Risk Factors" in Part I - Item 1A of the Trust's Annual Report on Form 10-K for the year-ended January 31, 2008, as updated by Part II, Item 1A of this Quarterly Report on Form 10-Q.

Idling of Pellet Furnaces. In its Form 8-K filed October 28, 2008, Cliffs . . .