Is A2A Staying on Track?
Alaska to Alberta railway considers refinancing to steam ahead
The Alaska Railroad, Ted Stevens Anchorage International Airport, World War II military infrastructure, and TAPS: there are a select number of large-scale infrastructure projects that have helped make Alaska what it is today.
It was hoped that the Alaska to Alberta Railway (A2A) would be a similar groundbreaking project, connecting producers and consumers in western Canada with the large and growing markets in East and South Asia.
“There are certain types of beachhead investments that create a lot of other jobs and contribute to increased economic activity in the state,” says A2A Vice-chair Mead Treadwell of these move-the-needle projects. “And while our ports are fundamental, in this case, the A2A could help Alaska find its destiny as a transportation powerhouse.”
While the idea of creating this type of railway has been around for more than a century—it is thought that the 1899 Harriman expedition along the coast of Alaska might have been in part to scout for a railroad route through the state—it hasn’t come near to fruition. In the past five years, however, a lot of work—from receiving presidential border crossing permission to working with Indigenous communities along the proposed route—has been done to try to make it a reality.
Like Harriman’s vision, however, the A2A might remain a dream—at least for the time being—as the A2A works its way through even rougher territory than the Alaska and Canadian landscapes. In June, the A2A filed for protection from creditors after its main lender, Bridging Finance Inc., was placed into receivership.
A2A, an Alberta corporation, proposes to build a 2,000-mile rail link between the existing North American rail grid, the Alaska Railroad, and Alaska tidewater ports. Its construction will enable Alaska, Yukon, the Northwest Territories, and Alberta to have greater access to world markets for their raw materials and manufactured goods, in addition to providing for tourism and passenger travel. The project is expected to cost approximately CA$22 billion-plus, or roughly US$18 billion.
“The chief benefit to Alaska is that it would diversify our economy, putting the state right in the middle of Eurasian cargo traffic,” Treadwell explains. “If we had a rail link starting at Seward, Anchorage, or Port Mackenzie that goes to Maine or Florida, it would mean that Alaska would be the closest port on the Pacific to goods coming in from Asia. It would create a two- to four-day time advantage, meaning that goods made in Asia would get to markets more quickly, like auto parts heading to factories in Toronto or Michigan.
“It would also make it easier to get the state’s own goods to market,” he adds. “Today, some of the minerals mined at the Red Dog Mine north of Kotzebue go to smelters in British Columbia, and while we’re not expected to serve the Red Dog, A2A Rail could help other hard rock mines in the Brooks Range that are being developed with plans to bring ore through Fairbanks. It would also create a lot of different opportunities as companies benefitted from cheaper shipping.”
The A2A is expected to create 4,000 construction jobs and 2,200 railroad operating jobs. Once in operation, it is estimated that Alaska’s GDP would see an increase of 10 percent, or $5 billion a year.
Treadwell adds that a rail line would dramatically increase business at Alaska’s underused ports, doubling or tripling the amount of cargo coming in.
The project is also expected to benefit Canada in a number of ways.
“Much like Alaska, Canada is a natural resource producer, so if you can get a railroad into Yukon crossing north of Whitehorse, it provides access to one of the country’s more active mineral exploration areas,” says Treadwell. “This would make it easier to move mineral concentrates to market, whether that’s smelters in Dalian, China, or in British Columbia.
“Canada is currently struggling with how to get potash, grains, and more to market with restrictions on Canadian ports,” he adds. “A rail line is expected to increase Canada’s GDP by approximately 30 to 40 percent; Alberta alone would see an increase of up to 20 percent, and the Northwestern Territories by 50 percent. It has tremendous potential.”
One of the goals of the A2A is to provide significant employment and ownership opportunities for members of the Indigenous communities along the proposed railway line.
“Early on, A2A was told by both infrastructure experts and the finance community that we needed two things to succeed: to be able to cross the border, and to have a relationship with the First Nations in Canada,” says Treadwell. “So we pursued a presidential border crossing permit, which [then] President Trump issued in September 2020, and we launched a five-year intensive consulting process involving more than fifty Native entities in Canada, seven Native landowners in Alaska, and a number of tribal villages and organizations.”
One of the things that Treadwell says is dramatically different about the A2A project, compared to previous mining, pipeline, and other infrastructure projects, is that the company set a goal of helping Indigenous people gain 49 percent ownership in the project.
“Canada has a number of Indigenous investment guarantee programs, and Alaska also has some opportunities where when you cross Native land, you can trade for equity in the project,” Treadwell explains. “We’re also looking at structuring debt financing so that long-term Native ownership becomes part of the project.”
“Even if a lender puts up $500 million, financing the project will require twenty times that to be built, so it will require global investors.”
On June 18, A2A Rail filed for protection from creditors after its largest lender, Toronto-based investment firm Bridging Finance, was placed in receivership by the Ontario Securities Commission on April 30. It took this action as a result of the court-appointed receiver of Bridging Finance, PricewaterhouseCoopers, calling in a CA$149 million loan made to A2A by the finance company.
This past year, Ontario financial regulators began investigating Bridging Finance for alleged improper use of investor funds to benefit the firm and its chief executive, David Sharpe. According to Ontario Securities Commission documents and media reports, A2A’s original founder and chairman, Sean McCoshen, paid CA$19.5 million into Sharpe’s personal bank account around the time the investment firm lent the railway project more than CA$100 million.
In an A2A press release dated June 23, 2021, the company said that it intends to start a court-approved sale and investor and solicitation process to pursue financing with other investors. This could include a sale of the company’s business on a going-concern basis including engineering, permits and pending permits, right-of-way agreements, marketing materials, agreements, and relationships with its proposed First Nations and Alaska Native partner entities.
McCoshen will not be involved in the process, which will be driven by a third-party consultant.
“Despite the lender’s receivership, the company believes that the A2A rail project concept is sound and has already made significant progress toward full financing above and beyond the development capital provided by Bridging Finance over the past five years,” the release reads.
In an interview the week prior to the announcement, Treadwell said that A2A was already looking to global investors to help fund the $18 billion project, on which more than $100 million has already been spent.
“On an infrastructure project, like a mine, an entrepreneur or small company will often take the project development risk and invest money to de-risk the project,” he explained of the original investment. “This provides major permitting and engineering cost estimates that can then be taken to infrastructure investors backed by global wealth funds to show permitting feasibility. Before the Bridging Finance issue, we were basically financing on the guarantee of the original owner that A2A would bring in strategic investors and infrastructure investors, and possibly some government debt programs.
“Even if a lender puts up $500 million, financing the project will require twenty times that to be built, so it will require global investors,” he adds.
While the status of the project and any further permitting or engineering activities are now on hold, Treadwell holds out hope that the A2A will move forward, albeit on a different timeline than was originally planned.
“The company needs to refinance to move forward with the whole project, and a lot of different things could happen—some faster, some more slowly,” he says. “The main point is that a lot of work has been done, and no matter what happens on the financing side, that work has created a lot of value.
“If you were planning to build a house and got an option on the land, preliminary designs from the architect, an estimated path with the building code department, and knew where the rent would come from once it was built—you might say that’s worth something,” he continues. “That’s where we are.”
He adds that it’s important to note that while Alaska is currently in the process of trying to figure out what types of actions will renew the state’s perception of its own economic future, the A2A is one project that could clearly help do that.
“Much like Alaska, Canada is a natural resource producer, so if you can get a railroad into Yukon crossing north of Whitehorse, it provides access to one of the country’s more active mineral exploration areas. This would make it easier to move mineral concentrates to market, whether that’s smelters in Dalian, China, or in British Columbia.”
This year the Alaska Railroad is celebrating 100 years of transportation people and cargo around Alaska. While the railroad is one of the states oldest transporters, it certainly isn’t the only one, and in this issue of Alaska Business we also check in on the Marine Highway, Span Alaska, and the White Pass & Yukon Route. For those interested in Southeast, our focus on that region provides updates on Kensington Mine, Tongass FCU, the troll fishery, and Juneau’s growing landfill.