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. It is possible that future negative price adjustments could partially or even completely offset 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. 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, 2009, as updated by Part II - Item 1A of Mesabi Trust's Quarterly Report on Form 10-Q for the quarter ended April 30, 2009. 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.

This discussion should be read in conjunction with the condensed financial statements and notes presented in this Form 10-Q and the financial statements and notes in the last filed Annual Report on Form 10-K filed for the period ending January 31, 2009 for a full understanding of Mesabi Trust's financial position and results of operations for the six month period ended July 31, 2009.

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 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 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. The Trust earns royalty bonuses when iron ore products shipped from Silver Bay are sold at prices above a threshold price per ton. 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 $47.43 per ton for calendar year 2008 and is $48.48 per ton for calendar year 2009. 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 $790,721 for calendar year 2008 and is $808,177 for calendar year 2009. 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 documents, Northshore may mine and ship iron ore products from lands other than Mesabi Trust lands. Northshore is obligated to make quarterly royalty payments in January, April, July and October of each year based on shipments of iron ore products from Silver Bay, Minnesota during each calendar quarter. In the case of base overriding royalties and royalty bonuses, these quarterly royalty payments are to be made whether or not the related proceeds of sale have been received by Northshore by the time such payments become due. Northshore alone determines whether to mine off Trust 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 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 from Silver Bay during such year in excess of six million tons.

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 Six Months Ended July 31, 2009 and July 31, 2008

As shown in the table below, production of iron ore pellets at Northshore from Mesabi Trust lands during the fiscal quarter ended July 31, 2009 totaled approximately 279,000 tons, and actual shipments over the same period totaled approximately 278,000 tons. By comparison, actual pellet production and actual shipments for the comparable period in 2008 were approximately 1.47 million tons and 2.55 million tons, respectively. The decrease in production and shipments at Northshore is the result of an extended shutdown of the mining operations at Northshore combined with a significant decline in orders from Cliffs' customers and lower anticipated demand from Cliffs' customers.

                               Pellets Produced from   Pellets Shipped from
        Fiscal Quarter Ended    Trust Lands (tons)      Trust Lands (tons)
           July 31, 2009                     278,887                278,444
           July 31, 2008                   1,473,683              2,548,888

As shown in the table below, during the six months ended July 31, 2009, production of iron ore pellets at Northshore from Mesabi Trust lands totaled approximately 960,000 tons, and actual shipments over the same period totaled approximately 516,000 tons. By comparison, actual pellet production and actual shipments for the comparable period in 2008 were approximately 2.69 million tons and 3.59 million tons, respectively. The decrease in production at Northshore is primarily the result of the mining operations at Northshore being shutdown from April 2009 through early July 2009. In addition, the significant and prolonged decline in orders from Cliffs' customers and lower anticipated demand from Cliffs' customers as they continue to adjust their purchases based on anticipated demand from their customers has resulted in lower production and shipments during the six months ended July 31, 2009.

                             Pellets Produced from   Pellets Shipped from
          Six Months Ended    Trust Lands (tons)      Trust Lands (tons)
           July 31, 2009                   960,065                515,897
           July 31, 2008                 2,689,784              3,589,002

Comparison of Royalty Income for the Three and Six Months Ended July 31, 2009 and July 31, 2008

Total royalty income for the quarter decreased approximately 97.5% over the comparable period in 2008. The decrease in royalty income is due to lower realized sales prices per ton of iron ore pellets and a 89% decrease in the total volume of iron ore pellets shipped during the three months ended July 31, 2009 as compared to the three months ended July 31, 2008. The lower sales prices per ton and the decrease in the volume of iron ore pellets shipped both contributed to a decrease in the base overriding royalty and the bonus royalty payments as a result of reduced demand for iron ore pellets.

The table below shows that the base overriding royalties, the bonus royalties, and the fee royalties each decreased by 99.4%, 94.7%, and 87.8% respectively, for the three months ended July 31, 2009. The decreases in the base overriding royalties and the bonus royalties are both attributable to the lower sales prices per ton of iron ore pellets and the decrease in the volume of tons shipped during the three months ended July 31, 2009, each as compared to the three months ended July 31, 2008.

The table below summarizes the components of Mesabi Trust's royalty income for the three months ended July 31, 2009 and July 31, 2008:

                                             Three Months Ended July 31,
                                              2009               2008
Base overriding royalties                 $      58,791    $      10,156,568
Bonus royalties                                 340,910            6,451,312
Minimum advance royalty paid (recouped)               -                    -
Fee royalties                                    19,434              158,683
Total royalty income                      $     419,135    $      16,766,563

Total royalty income for the six months ended July 31, 2009 decreased approximately 93% over the comparable period in 2008. The decrease in royalty income is due to lower realized sales prices per ton of iron ore pellets and a 86% decrease in the total volume of iron ore pellets shipped during the six months ended July 31, 2009 as compared to the six months ended July 31, 2008. The lower sales prices per ton and the decrease in the volume of iron ore pellets shipped both contributed to a decrease in the base overriding royalty and the bonus royalty payments.

The table below shows that the base overriding royalties, the bonus royalties, and the fee royalties each decreased by 94.7%, 91.4%, and 70.2% respectively, for the six months ended July 31, 2009 from the comparable period in 2008. The decreases in the base overriding royalties and the bonus royalties are both attributable to the lower sales prices per ton of iron ore pellets and the decrease in the volume of tons shipped during the six months ended July 31, 2009, each as compared to the six months ended July 31, 2008.

The table below summarizes the components of Mesabi Trust's royalty income for the six months ended July 31, 2009 and July 31, 2008:

                                            Six Months Ended July 31,
                                               2009            2008
Base overriding royalties                 $      629,356   $ 11,912,740
Bonus royalties                                  724,671      8,410,036
Minimum advance royalty paid (recouped)                -              -
Fee royalties                                     86,820        291,497
Total royalty income                      $    1,440,847   $ 20,614,273

Comparison of Trust Income, Expenses and Distributions for the Three and Six Months Ended July 31, 2009 and July 31, 2008

Net income for the three months ended July 31, 2009 was $221,012, a decrease of approximately 98.7% compared to the three months ended July 31, 2008. As with the decrease in total royalty income, the decrease in net income for the quarter ended July 31, 2009 is the result of lower sales prices per ton of iron ore pellets shipped and a decrease in the volume of tons shipped. The Trust's expenses of $201,925 for the three months ended July 31, 2009 was consistent with the Trust's expenses for the three month period ended July 31, 2008. The table below summarizes the Trust's income and expenses for the three months ended July 31, 2009 and July 31, 2008, respectively

                          Three Months Ended July 31,
                           2009               2008
Total royalty income   $     419,135    $      16,766,563
Interest income                3,802                5,240
Gross income                 422,937           16,771,803

Expenses                     201,925              201,486
Net income             $     221,012    $      16,570,317

Net income for the six months ended July 31, 2009 was $1,022,058, a decrease of approximately 94.9% compared to the six months ended July 31, 2008. As with the decrease in total royalty income, the decrease in net income for the six months ended July 31, 2009 is the result of lower sales prices per ton of iron ore pellets shipped and a decrease in the volume of tons shipped. The Trust's expenses of $425,760 for the six months ended July 31, 2009 was consistent with the Trust's expenses for the six month period ended July 31, 2008. The table below summarizes the Trust's income and expenses for the six months ended July 31, 2009 and July 31, 2008, respectively

                         Six Months Ended July 31,
                            2009            2008
Total royalty income   $    1,440,847   $ 20,614,273
Interest income                 6,971         19,337
Gross income                1,447,818     20,633,610

Expenses                      425,760        423,640
Net income             $    1,022,058   $ 20,209,970

As presented on the Trust's Condensed Statements of Income on page 2 of this quarterly report, the Trust's net income per unit decreased $1.2500 to $.0168 for the three months ended July 31, 2009 and decreased $1.4625 to $.0779 for the six months ended July 31, 2009 as compared to the three and six months ended July 31, 2008, respectively. The Trust did not declare any distributions to Unitholders for the three months ended July 31, 2009. Comparatively, the Trust declared and paid a distribution of $1.00 per unit for the three months ended July 31, 2008. For the six months ended July 31, 2009, and July 31, 2008, the Trust declared distributions of $.38 and $1.12, respectively.

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 and such royalty payments may include pricing adjustments with respect to shipments during prior periods. The Trust accounts for and reports accrued income receivable based on shipments during the last month of the Trust's fiscal quarter (April, July, October and January) and price adjustments under the Cliffs Pellet Agreements (which can be positive or negative and can result in significant variations in royalties received by Mesabi Trust and cash available for distribution to Unitholders). The Trust accounts for these amounts by using estimated prices and reports such amounts even though accrued income receivable is not available for distribution to Unitholders until it is received by the Trust. 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

Comparison of Unallocated Reserve as of July 31, 2009, July 31, 2008 and January 31, 2009

The Unallocated Reserve (Deficit), which is comprised of accrued income receivable, cash reserve for potential fixed or contingent future liabilities, and, with respect to the six months ended July

31, 2009, deferred royalty revenue, decreased from $7,175,579 as of July 31, 2008 to ($171,365) as of July 31, 2009. The significant positive balance in the Trust's Unallocated Reserve as of July 31, 2008, was the result of the accrued income receivable portion of the Unallocated Reserve which was $6,453,966 as of July 31, 2008, compared to $554,101 as of July 31, 2009. The decrease in the accrued income receivable portion of the Unallocated Reserve is the result of significantly lower shipments during the month of July 2009, together with generally lower prices on pellets shipped by Northshore, both as compared to July 2008.

The deficit in the Trust's Unallocated Reserve as of July 31, 2009, is the result of an estimated $2,570,000 liability, which is represented on the Trust's balance sheet as deferred royalty revenue. Because of declines in the estimated pricing of iron ore pellets subsequent to January 31, 2009, the royalty payment received by the Trust in April 2009 includes approximately $2,570,000 of cash proceeds that were received by the Trust, but has not been recognized as revenue in accordance with the Trust's revenue recognition policy. Because of further decreases in current pricing estimates provided to the Trust by Northshore, the deferred royalty revenue increased approximately 8% from $2,370,000 as of April 30, 2009 to $2,570,000 as of July 31, 2009. The Trust did not have any deferred royalty revenue as of July 31, 2008. Depending on future adjustments to iron ore pellet pricing, if any, the deferred royalty revenue could cause a cumulative negative price adjustment related to shipments of pellets during prior periods, which could partially or even completely offset future royalty income to be received by the Trust.

Notwithstanding the deficit in the Trust's Unallocated Reserve as described above, the Trust's cash reserve for potential fixed or contingent future liabilities, represented on the Trust's balance sheet by unallocated cash and U.S. Government securities, increased 155.6% to $1,844,534 as of July 31, 2009 from $721,613 as of July 31, 2008. The increase in the cash reserve for potential fixed or contingent future liabilities is due to the Trustee's decision to not declare distributions during the quarter ended July 31, 2009, because of the Trust's deferred royalty revenue liability and the uncertainty surrounding the volatile global economic climate that continues to impact the iron ore and steel industries.

The accrued income receivable portion of the Unallocated Reserve decreased from $6,453,966 as of July 31, 2008 to $554,101 as of July 31, 2009. The Trust's Unallocated Reserve (Deficit) as of July 31, 2009 decreased from $3,792,181 as of January 31, 2009, to ($171,365) as of July 31, 2009. The decrease in the Unallocated Reserve (Deficit) is due to the Trust's accrual of $2,570,000 in deferred royalty revenue combined with a lower accrued income receivable resulting from a substantial reduction in shipments from Northshore during the month of July 2009. Moreover, as a result of the price adjustment mechanisms under the Cliffs Pellet Agreements, the Trust received positive adjustments to its royalty income which is reflected in the royalty income for the year ended January 31, 2009. No such positive price adjustments were attributed to the Trust for the three or six month period ending July 31, 2009. Those adjustments were attributable to shipments of iron ore pellets by Northshore/Cliffs to its customers from Silver Bay, Minnesota during calendar years 2006, 2007 and 2008. In the aggregate, the pricing adjustments increased the accrued income receivable reflected on the Trust's balance sheet as of January 31, 2009. At January 31, 2009, approximately 72% of the Unallocated Reserve or $2,721,978 was represented by accrued income receivable while 28% or $1,070,203 was represented by unallocated cash and U.S. Government securities.

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 as a reserve for potential fixed or contingent future liabilities. As a result of the $2,570,000 deferred royalty revenue recorded by the Trust, the unpredictable nature of the current economic conditions, and the potential for future negative price adjustments under the long-term customer contracts between Northshore, CCI and certain customers (the "CCI Pellet Agreements"), the Trustees have determined that it is prudent to increase the Unallocated Reserve above the range of $500,000 to $1,000,000. The actual amount of the Unallocated Reserve will fluctuate from time to time and may increase or decrease from its current level. Future distributions will be highly dependent upon royalty income as it is received, changes in estimated pricing, potential for future price adjustments and the level

. . .