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Mesabi Trust Message Board

  • pelletman52 pelletman52 Jan 3, 2011 5:12 PM Flag

    J Duade pellet price

    When you back calculate the pellet price for Northshore pellets sold in the 3rd Qtr, you must use the base price revenue not the bonus revenue due to not all of boat loads of pellets in the 3rd Qtr were priced high enoungh to receive the 3% bonus. Mesabi Trust in its reports has supplied all that is needed to make the calculation, 1st qtr production, 2nd qtr production, 3rd qtr production, 3rd qtr revenue and the royalty structure. When you back calculated using the bonus royalty you assumed a 3% bonus, it however calculates out to be less for the 3rd qtr. Back calculating using the base royalty you get $78 a ton. Pellet prices vary dedending of the the contracts with the different steels companies and the quality of the product. Boats leaving Silver Bay have remained strong all thoughout December and into 2011.

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    • the problem is that the calculations out there that have tracked ship movements and the size of the cargo have determined that the next dividend, ex-date approximately 1/27, will be only $ .65 because shipments have been lower than they have been in the prior quarter. At $ .65 the correct stock price is 30. They should be making the announcement on 1/14 or 1/17. Any dividend amount above $ .65 will obviously move the stock price up. Last qtr. div was $ .91 and the stock price was 43 on the ex-date. Therefore, do the calculation when the div amt is announced to find the stock price on the ex-date.

    • Norridge hate too see all this bad're and old board member guess I will see you back in March or April. How is Silver Bay this new year.Right gutowski best re-guards Happy New Year.

    • Pelletman,

      As Ujok was saying, the bonus royalty rate is applied to any pellets that are shipped out from Silverbay in excess of a set price for a given year. In 2010 the price was around $48.81, and the bonus rate is tiered so that an elevated price results in an increase in the bonus royalty up to 3%. The tiered system according to SEC filings works like this:

      $2 or less (over the $48.81) --------------------- 0.5%
      $2-$4 -------------------------- 1%
      $4-$6 -------------------------- 1.5%
      $6-$8 -------------------------- 2%
      $8-$10 ------------------------- 2.5%
      >$10 --------------------------- 3%

      So, when you look at the bonus royalty rate it gives you a sense of what the tons are sold at. You just take the bonus royalty revenue and divide it by the tons sold to get the price per ton. Then you take the revenue, and multiply that by the bonus percentage to get the trust's bonus revenue.

      1,846,770 tons x $71.71 per ton = $132,431,876
      $132,431,876 x .03 = $3,972,956

      Also, as Ujok mentioned the distributions are based on the quarters January 1st - March 31st, April 1st - June 30th, July 1st - September 30th, and October 1st - December 31st. The quarterly reports are a month behind and look at a slightly different period e.g., February 1st - April 30th, May 1st - July 31st, August 1st - October 31st, and November 1st - January 31st.

      Hope this clears up some confusion.

      • 2 Replies to jduade
      • Bonus royalties are paid based on the "sales prices for a particular quantity of pellets"(From MSB annual report). Which in most cases means by the boat or buyer if all the shipments are priced the same for that particular buyer and quarter. However not all shipments in the case of last quarter exceeded the treeshold price by $10, some of the shipments were probably Sinter Feed or Concentrate which command a lower price and a lesser bonus, say 2% or 2.5%. One becomes aware of this when you back claculate the base and the bonus royalties. For the third quarter the bonus royalty averaged about 2.76% not 3%. When you calculate the average selling price based the bonus royalty you get a too low of a pellet price if you use 3%. The only way to calculate the average selling price for the third quarter is through the base royalty where all the inputs are known. You know the total base royalty paid, the number tons at 5%, the number of tons at 5.5% and the number of tons at 6%. Fairly simple math, you don't need to have a Phd in math like the major funds employ. That's how you get $78 a ton for the average selling price. You can't have $71 in the bonus calculation and $78 in the base calculation. For the third quarter calculations everything works out nicely if you $78 a ton and 2.76% for the bonus royalty. I however like all of us do not know what the price per ton or what the average bonus royalty percent will be for the fourth quarter, we only have the third quarter to work with.

        Also prices now vary more by quarter where the contracts use all or part of its pricing based on the world price. The world price is now done quarterly,it used to be annually. I don't know what escalators are used for the different steel companies buying pellets from Northshore, it however does appear like Essar Steel buys pellets from Cliffs based 100% on the world price.

      • Also, the boatnerd figures for December 2010 were 611,275 tons according to my numbers. There were 2 exta boats that went through the St. Clair (44,800 max tons) and the Buffalo (24,300 max tons). Boatnerd figures are good, but the LCA numbers are generally a lot more meaningful. Once those are published for December, we should have a good idea as to what the real quarterly tonnage will look like. Good luck to all with their positions.


    • $78/ton is roughly $30 in excess of the bonus royalty threshold. The maximum bonus rate of 3% applies to all tonnage priced more than $10 above the threshold. All tonnage shipped in 2010 was due the maximum bonus rate.

      It's important to remember that the royalties are calculated on calendar quarters, but MSB's quarterly reports use a Feb-Jan fiscal year. This means that the tonnage reported in the 3rd quarter 10-Q is Aug-Oct, but royalties were paid for shipments in Jul-Sep.

      CLF's contract price, and more importantly, the price CLF pays to Northshore, really doesn't vary much during a year, nevermind between boats.

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