Wall Street Loves Mesabi Trust (MSB). Should You?

Yet low risk doesn’t mean no risk. Mesabi is highly dependent on demand for steel and how well Cliffs can sell iron ore pellets into the market, particularly through its Northshore Mining operation in Minnesota, which leases and operates the lands of the Mesabi Trust. ArcelorMittal (ADR) (NYSE:MT) has previously been a major customer of Cliffs’ output.

Yet declining iron ore prices and rising costs have hampered the miner’s profitability in recent quarters, so in November it announced it was halting production at Northshore and at its Empire Mine in Michigan. The trust believes production curtailment at Northshore and the layoff of 125 employees will have a negative impact on production attributable to the trust this year and production may fall below 2012’s output. It just warned that its upcoming distribution for February would only be $0.49 per unit, a precipitous 35% decline from the $0.76 it paid out a year ago.

A one-off event
While China’s slowdown in purchasing iron and steel is partly to blame for the price volatility being felt around the world, steel is still being used in the production of appliances for new homes and in vehicle sales here at home. Analysts anticipate that Cliffs’ move is isolated and that we won’t see others with interests in the area, such as Arcelor or U.S. Steel, following suit.

There’s a diminished outlook facing it for 2013 at least, but let me know in the comments section below if you trust the Mesabi Trust to bounce back.

The article Wall Street Loves Mesabi Trust. Should You? originally appeared on Fool.com and is written by Rich Duprey.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of ArcelorMittal.

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