Benoit Poirier of Desjardins Capital Markets said Canpotex's option to build a new potash export terminal in Prince Rupert, B.C., got a shot in the arm from a recent favourable report from the Canadian Environmental Assessment Agency.
It concluded that the project won't likely cause significant adverse environmental effects and said proposed measures could mitigate those problems.
The agency is inviting public comments until Oct. 5, but Poirier said the federal Environment Minister could give his approval by year-end.
Poirier said the terminal could generate about $500 million a year in additional revenues for the Montreal-based railway (TSX:CNR) which is the exclusive railroad serving the port and help it capture half the potash market by 2016.
Canpotex markets fertilizer abroad on behalf of the three biggest Saskatchewan producers: Potash Corp. (TSX:POT), Agrium Inc. (TSX:AGU) and the American potash producer Mosaic Co. (NYSE:MOS).
The consortium plans to spend about $800 million to increase its capacity at Prince Rupert to 11.5 million tonnes per year by 2020. Poirier estimates CN's rail costs would be less than $100 million.
The agency report highlighted that Prince Rupert, the north coast of B.C., is the closest to Asian markets, which would translate into lower operating costs, transit times and emissions than alternatives in Vancouver, Cherry Point, Wash., and Portland, Ore.
Indian fertilizer company IFFCO also recently selected the Becancour Waterfront Industrial Park in Quebec to establish a $1.2 billion gas-based urea plant that would use CN's network to serve customers in the U.S. Midwest.
Construction of the fertilizer co-operative's fifth ammonia urea plant in the world and first in North America is expected to take about 18 months and be operational in about five years. Shipped volumes weren't immediately known but the facility would have a capacity of 1.3 million tonnes per year.
Railway service to the port was one of the reasons Becancour was selected after IFFCO considered 50 other locations. It also has a year-round deepwater port and access to natural gas supply.
Poirier said CN also has opportunities related to coal mining in northern British Columbia and Alberta. Coalspur Mines decision to export thermal coal from Alberta through Port Rupert could net CN $277 million of annual revenue, up from $200 million a year, he wrote.
It could reap the benefits from a potential International Longshoremen's Association strike scheduled for the end of September. A strike would likely divert traffic to Vancouver and Prince Rupert in the west and Halifax and Montreal in the east.
CN would be less affected than rival Canadian Pacific Railway (TSX:CP) by lower water levels at the Port of Montreal that would reduce freight volumes.
"We believe the market could take a more constructive view on CN in light of the company's impressive growth opportunities and strong outlook for 2012," he wrote in a report. He has a buy rating with a target price of C$96 per share.
On the Toronto Stock Exchange, CN's shares closed up two cents at $90.99 in Monday trading.