In a move that was long expected, Canadian Pacific (TSX:CP)(NYSE:CP) said Dec. 3 that it will take a fourth quarter pre-tax non-cash charge of approximately C$180m (C$107m after tax) on its option to build a rail link into the Wyoming end of the Powder River Basin (PRB).
When CP acquired the Dakota Minnesota & Eastern railroad in 2007, it also acquired the option to build a 260-mile extension of DM&E’s network into coal mines in the Wyoming end of the PRB. Components of the charge include the option, engineering design costs, land and capitalized interest.
“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,” the railroad added.
The DM&E had worked for several years on a plan to extend an existing light duty rail line that runs through Wisconsin and Minnesota, then through and with an existing terminus in South Dakota, further west into the Wyoming PRB, offering an alternative to the two existing rail carriers. The BNSF Railway serves all of the mines in both the Wyoming and Montana ends of the PRB, while the Union Pacific only serves the southernmost Wyoming PRB mines south of Gillette, Wyo., via a shared Joint Line with the BNSF. The DM&E plans to compete with those two railroads had been pretty quiet since its 2007 acquisition by the Canadian Pacific.