CP Rail drops plan to push into Powder River

Mon Dec 3, 2012 11:54am EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Susan Taylor

TORONTO (Reuters) - Canadian Pacific Railway CP.TO will take a C$180 million ($181.2 million) charge to abandon plans to expand into the Powder River coal-mining region in the U.S. states of Wyoming and Montana, citing weakness in the thermal coal market.

Canada's No. 2 railway acquired the option to build a 260-mile extension into coal region of northeastern Wyoming and southeastern Montana as part of its C$1.48 billion purchase of the Dakota Minnesota and Eastern Railroad in 2007.

The decision comes as no surprise because CP had estimated the expansion project to cost more than C$5 billion, said National Bank Financial analyst Cameron Doerksen.

"This would have been prohibitively expensive for CP even with the support of financial partners," Doerksen said.

"The reality is that the U.S. domestic thermal coal market appears to be in long-term decline, and there are already two other Class I railroads serving the Powder River Basin."

CP's decision to defer the option indefinitely could signal plans to sell parts of the DM&E network, said Doerksen.

CP's new chief executive, Hunter Harrison, will reveal his turnaround plan for investors in New York on Tuesday and Wednesday. Harrison was the hand-picked choice of CP's biggest shareholder, William Ackman's Pershing Square Capital Management, during a bruising proxy battle this year that unseated the former CEO and board chairman.

In a push to improve operating efficiency, Harrison is expected to announce deep job cuts, the closure of rail-classification hump yards, and the relocation of the company's headquarters in Calgary, Alberta.   Continued...

A Canadian Pacific Railway locomotive sits at the Obico Intermodal Terminal in Toronto, May 23, 2012. REUTERS/Mike Cassese