CP Rail shelves PRB expansion plans

COAL rail shipper Canadian Pacific Railway said it would take a whopping $180 million charge for its decision to suspend its option plans to increase its Powder River Basin footprint on continued market weakness.
CP Rail shelves PRB expansion plans CP Rail shelves PRB expansion plans CP Rail shelves PRB expansion plans CP Rail shelves PRB expansion plans CP Rail shelves PRB expansion plans

Courtesy Canadian Pacific Railway

Donna Schmidt

The non-cash hit, which equates to $107 million after tax, will impact its fourth quarter figures come year-end.

“It is CP’s intention to defer indefinitely plans to extend its rail network into the PRB coal mines based on continued deterioration in the market for domestic thermal coal, including a sharp deterioration in 2012,” company officials said.

CP, Canada’s second-largest railway and a top coal shipper, bought the private Dakota, Minnesota and Eastern railroad in 2007 for approximately $1.5 billion.

The deal came with an option for CP to construct a 260-mile extension into the PRB, setting off $1.05 billion more in contingency payments to DM&E’s former owners if the expansion was brought online by 2025.

National Bank Financial analyst Cameron Doerksen previously said the expansion into the coal-rich region could carry a price tag in excess of $5 billion, including contingency payments and costs associated with infrastructure development.

“This would have been prohibitively expensive for CP even with the support of financial partners,” he told the Financial Post, noting that he was not surprised by the decision.

“The reality is that the US domestic thermal coal market appears to be in long-term decline and there are already two other Class I railroads serving the PRB so the business case for CP was always going to be a difficult one to make.”

CP operates in six Canadian provinces and 13 US states and maintains 14,700 miles of track.

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