19 November 2008
CP Bides its Time on Powder River Growth
Canadian Pacific Railway Ltd. refuses to be rushed into a
decision on whether it will expand into the coal-rich region of the Powder River Basin, which sits astride Montana and
Wyoming in the United States.
But if Canada's second-largest railway does, it will look for a partner to help cover the price tag, which could run to
US$6-billion.
Investors cast their attention to the expansion plans recently after CP assumed control of Dakota, Minnesota, & Eastern Railroad
Corp., which it agreed to purchase last year.
The deal includes the possibility of expansion into the Powder River Basin, but CP has been tight-lipped about whether it
will go ahead with it.
"You should never be in a hurry to build a railroad," Kathryn McQuade, CP's chief financial officer, said yesterday.
"You don't build a railroad for next year's volumes. You build a railroad for a good sound business case."
Speaking at a conference in New York, Ms. McQuade called the regulatory approval that DM&E was already granted on the route
"tough to replace" in today's regulatory environment and noted it doesn't come with an expiration date.
The railway will be monitoring the United States' energy strategy in the months ahead to determine whether there would be a
long-term demand for the thermal coal produced in region, Ms. McQuade said. "That has to be a very stable
environment, I believe, to warrant further investment into the [basin]," she said.
The railway will need a strong partner, and need to be confident it can affordably raise the capital needed for the expansion given
the current credit crisis.
"We have made this clear that we would never go this alone," Ms. McQuade said, adding that no partner has been chosen.
CP will look to leverage the regulatory approval it possesses, its ability to acquire right-of-ways and its experience in
the bulk business with a partner who can help with the construction of the lines.
CP's larger domestic rival, Canadian National Railway Co., is benefiting from just such a gamble, according to James Foote, CN
vice-president of sales and marketing.
After seeing major declines in its forestry and auto shipments, it added volumes from projects such as its expansion at the port of
Prince Rupert that levelled off declines in its volumes so they are "relatively flat" compared with last year, Mr. Foote
said at the same conference.
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