- They earn royalties on iron ore mined from one of Cleveland-Cliffs' main mines.
- Cleveland-Cliffs is trying to put a strain on Mesabi by idling mining as much as possible at the main Minnesota mine where Mesabi has the royalty agreement.
- Cleveland-Cliffs complained on earnings call about the royalty structure but hasn't tried to renegotiate it before making this move.
- We think investors should call Cliffs' bluff by buying Mesabi, because Cliffs has been CAPEXing a lot on the Minnesota mine, and with iron ore prices being so high, you'd want to utilise the asset.
- This is a bargaining tactic that makes sense, but ultimately Mesabi's position seems favourable. Dividend yield could be as much as 20% on a forward basis.
For further details see:
Mesabi Trust Is Not So Easily Ousted