Dakota, Minnesota & Eastern Railroad Transaction Places $2.3 Billion PRB Rail Project in Limbo

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Researched by Industrial Info Resources (Sugar Land, Texas)--Since 1998, Dakota, Minnesota & Eastern Railroad Corporation (DM&E) (Sioux Falls, South Dakota) has been attempting to begin construction on a $2.3 billion upgrade and expansion of its rail system that would allow it to tap into the coal-rich Powder River Basin region of Wyoming and move coal to markets in the Midwest and East. But as of September 4, 2007, that plan, known as the PRB project, is in limbo. Meanwhile, pending regulatory approval, Canadian Pacific Railway Limited (NYSE:CP) (CP)(Calgary, Alberta Canada) will conclude a $1.5 billion deal to purchase DM&E and its subsidiary Iowa, Chicago & Eastern.

DM&E has had regulatory approval for the PRB project since 2002, but has lacked the funding to get the project underway. In February 2007, the Federal Railroad Administration rejected DM&E’s application for $2.3 billion in government funding, forcing one of the nation’s largest regional railroads to seek a buyer who would be more capable of garnering funding to get the project into the construction stages.

CP has already committed to spending $300 million to upgrade DM&E’s existing system, and when it chooses to peruse the PRB project, it would be only the third railroad transporting coal from the PRB region. Currently, only Union Pacific Corporation (NYSE:UNP) (Omaha, Nebraska) and Burlington Northern Santa Fe Corporation (NYSE:BNI) (Fort Worth, Texas), the nation’s No. 1 and No. 2 railroads, respectively, are transporting coal from theregion.

CP should not have issues with finding funding for the PRB project, and construction would take two to three years. After completion, the expanded line would be made profitable within four to five years. The PRB plan has met with political opposition in Minnesota where the proposed line would run close the Mayo Clinic in Rochester, Minnesota, eliciting fears of increased traffic in the area. However, groups opposed to the rail expansion have said they look forward to meeting with CP to discuss their concerns.

With this purchase, CP adds 2,500 miles of track, 200 locomotives and 8,000 railcars to its existing system and fleet. CP operates more than 14,000 miles of track in Canada and the United States.

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