Canadian Pacific to Write Down $180 Million

Canadian Pacific Railway Ltd. (NYSE: CP) this morning announced that it will take a pretax, noncash fourth-quarter charge of $180 million related to its option to build an extension of its network into the Powder River Basin (PRB) coal mining region. The company acquired the option in 2007 when it bought the Dakota Minnesota & Eastern railroad.

In its announcement the company said:

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.

That pretty much says it all for the market for thermal coal in the United States. The larger PRB miners like Arch Coal Inc. (NYSE: ACI), Alpha Natural Resources Inc. (NYSE: ANR), Cloud Peak Energy Corp. (NYSE: CLD) and Peabody Energy Corp. (NYSE: BTU) have been trimming production as coal prices remain low.

Canadian Pacific is just acknowledging the fact that a turnaround may not be imminent. Building a 260-mile extension to its existing network simply makes no economic sense.

Since Canadian Pacific has come under the control of William Ackman and his Pershing Square Capital Management, the company’s share price has jumped nearly a third and posted an all-time high of $94.83 in early November.

Shares of CP are inactive in premarket trading this morning, having closed on Friday at $93.34 in a 52-week range of $60.79 to $94.83.

Paul Ausick