Hill’s Great Northern ore trust terminated
James J. Hill is back in the news this month, but not for his famous railroad. Instead, it's for his lesser-known role as an iron ore magnate. For decades, much of Minnesota's Mesabi Range was owned by a St. Paul-based trust that Hill and his par...
James J. Hill is back in the news this month, but not for his famous railroad. Instead, it’s for his lesser-known role as an iron ore magnate.
For decades, much of Minnesota’s Mesabi Range was owned by a St. Paul-based trust that Hill and his partners created in 1906. The Great Northern Iron Ore Properties trust finally terminated on April 6, a century after Hill’s death, and its shares stopped trading on the New York Stock Exchange.
But unlike his legendary Great Northern Railway, which was wrestled into being by Hill’s iron will, his iron ore holdings were something of an accident.
It’s a tale of high finance and amazing fortune, befitting St. Paul’s larger-than-life railroad baron. And it began with Hill’s hunger to build a rail line across northern Minnesota in the 1890s, to haul grain more directly from the Red River Valley to Lake Superior.
Unexpected windfall In 1897, Hill grudgingly bought the small Duluth, Superior & Winnipeg Railroad, which came with 10,000 acres of Mesabi Range land.
“His two sons had to talk him into being interested in it in the first place,” said Eileen R. McCormack, a Hill family biographer and former curator of the Hill papers. “He didn’t seem to have a large interest in getting land along the railroad, or (investing) in any of the speculation or the business activities along the railroad.”
Two years later, Hill wrote a $2 million personal check - half the purchase price - for 25,000 acres of logged-off land, which had a small rail line to Hibbing for carrying logs.
Folks already knew the region had iron ore. Some mines were already operating, and Hill’s sons were excited by the potential. But nobody knew how vast those deposits really were.
“In a way, they kind of fell into the biggest, most valuable property on the Range,” said Pam Brunfelt, an Iron Range historian.
As it turned out, Hill had personally bought the great Mahoning mine, the motherlode that would feed America’s steel age and play major roles during two World Wars.
Hill’s son Louis “persuaded him to buy it,” Brunfelt said. “And, oh my God, what happened when they bought that” - feeding an industrial boom that would transform Minnesota and the nation.
Brunfelt gave one example: “The Hull-Rust-Mahoning (mine) complex provided 25 percent of the ore during World War II that the nation consumed ... and Hill owned a big part of it.”
Quietly collecting royalties At the start, it took the Hill family a few years to fully explore and understand what they owned. And once they did, it led to soul-searching about how to handle it.
First, Hill turned his personal ownership of the mines over to his railroad, a move that Hill’s more reverential biographers cite as proof of his honor and generosity.
“During his lifetime, Hill referenced it a number of times, to show that he wasn’t a robber baron, that he was a little altruistic, that he was doing it for the stockholders of the Great Northern Railway,” McCormack said. “He never really explained that the (railroad’s) major stockholders were the founding partners and their families ... so it really didn’t cause them any harm financially.”
(But it did allow Hill in 1907 to testify, somewhat disingenuously, that he hadn’t “made the value of a postage stamp, directly or indirectly, out of the transaction.” A truer account came in 1912, when Hill told a congressional committee that the land he’d bought for $4 million would yield $750 million in iron ore.)
Following their initial land purchases, Hill and his sons bought even more Iron Range land, raising the total to 67,000 acres. Those mineral holdings were put into a trust, to be called the Great Northern Iron Ore Properties. The trust never did any mining itself; it only collected royalties.
Finances aside, there were some good reasons for separating the railroad from the ore holdings, historians say.
Hill always saw his railroad’s mission as moving goods, not producing them; mining wasn’t part of the Great Northern Railway charter; and above all, by 1906 it became illegal for railroads to haul commodities that the railroads themselves had produced.
As one of the trust’s current officials, Robert Stein, testified last November, “It was set up uniquely by James J. Hill as part of the political circumstances of the time to avoid a federal statute that was passed. ... There’s really no other trust like it.”
Yet there was another reason, at a time of rising public resentment toward wealthy industrialists and grim conditions at the mines. Those iron ore holdings had grown so lucrative that Hill wanted to “avoid the charge of earning too much money,” according to an authorized company history, “The Great Northern Railway.”
From the start, the iron ore trust had its headquarters in St. Paul, as did Hill’s more famous Great Northern Railway. Unlike the railroad, the trust rarely drew much attention. It only had 10 employees.
But it collected a lot of royalties, more than $500 million over its long lifetime.
“Even though it was a public stock, it wasn’t a publicized venture,” McCormack said. “Most people didn’t know anything about it, unless they were investors themselves and worked for investment companies. It just sat there, in offices at the First National Bank building, and no one paid a lot of attention to it.”
That was true even on the Iron Range. Asked about the trust’s public profile there, historian Brunfelt laughed and replied, “None.”
Princes of the empire Because Hill created a property-holding trust, it had to follow laws insuring that property is controlled by the living, not the dead. So the trust came with an expiration date: it would terminate 20 years after the last original founder had died.
The Hills shrewdly included a group of children among the founders, insuring the trust would last a very long time. The last survivor turned out to be James J. Hill’s grandson, Louis Hill Jr., who died April 6, 1995.
Louis Jr. was just 4 years old when the trust was created. He went on to become a prominent businessman in St. Paul, a state legislator for 14 years and a philanthropist who helped disburse some of the family’s fortune.
After Louis Jr.’s death, the 20-year clock began ticking for the Great Northern Iron Ore Properties trust, even as its stock continued to trade under the GNI symbol. Its last trading day was April 6, 2015. It closed at $8.10 a share, roughly what shareholders can expect in a final payout.
Ownership of the Iron Range mines will now pass to energy company Conoco-Phillips. That handoff has been the subject of a dispute in Ramsey County District Court, mostly about the timing of the handover. Conoco-Phillips wanted to get the property immediately on April 7, but the trustees argued that winding up the trust’s affairs would take until 2016.
The legal dispute has led the trust’s final president, Joseph Micallef, to decline interviews - although Micallef did say, “It is a very unusual trust.”
In a ruling Jan. 26, Judge Margaret Marrinan sided with the trust. But in a nod to the unique situation, she wrote, “This is truly uncharted territory; there is no map the trustees can consult.”
Meanwhile, some of the original mines are still being worked. That includes the Mahoning. The high-grade ore is long gone, but now the mines yield lower-grade taconite.
“It is still active, and if you add the Hibbing Taconite Pit to it, it stretches for five miles now,” Brunfelt said. “It is just amazing that one mine complex produced as much ore as it has.”
The mines have been lucrative for a very long time. That is reflected in a 1946 summary from Louis Hill Sr., reprinted in the biography “The Dutiful Son: Louis W. Hill.”
It was Louis who acquired the land that became the Hill Annex Mine. He wrote that by 1946, that single mine had produced 40 million tons of iron ore and generated $37 million in freight revenue for the railroad and $22.5 million in royalties that flowed into the trust.
But getting the freight revenue required a massive investment in track, machinery, land and manpower. Collecting the royalties required very little investment, beyond the initial price.
Still, historians agree that the Hills’ role on the Iron Range was definitely not a matter of just cashing royalty checks. The man nicknamed the Empire Builder, and his descendents, get credit for a defining role in developing and shaping Minnesota’s Iron Range and the Northwest.
Said Brunfelt, the Iron Range historian, “The Great Northern (Railway) is one of the great success stories in American history, the only transcontinental railroad built by an individual, which is astonishing when you think of it.
“He was one of the key figures in moving the ore from the mines to the docks,” she said. “That ore movement was absolutely critical. Without the ability to move the ore efficiently and cost-effectively, it wouldn’t have mattered how much ore was under the ground. And he built the iron ore docks, which made it possible” to ship ore to distant cities like Cleveland; Gary, Ind.; and Pittsburgh.
Hill’s Great Northern, McCormack added, “profited on all sides, from the ore itself, and the transporting of it by rail to Duluth, and then by ship because it went on Hill’s ships. It was a fortuitous investment for them.”
With the end of the iron ore trust, any royalties that flow from the mines will now head in another direction. But it has been a source of wealth for the Hill family and for the railroad’s investors for more than a century.
The Hill family has shared some of that wealth with St. Paul and the region, through foundations that continue to this day.
“The Hill foundations that exist today, none of them have the Hill name on them,” McCormack said. “Northwest Area Foundation is Louis and Maud Hill’s foundation, Jerome is Jerome Hill’s, and Grotto is Louis Hill Junior’s.”
So the legacy of the Empire Builder is still around - and goes far beyond what is now known as the BNSF Railway, or Hill’s most personal emblem, the massive stone mansion on St. Paul’s Summit Avenue. But as the decades pass, the legacy has become harder to see.
“Old St. Paul knows who he was,” McCormack said of James J. Hill. “But he isn’t front and center.”
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