Leading Canadian railroad Canadian National Railway ( CNI - Analyst Report ) has entered into a multi-year agreement with Superior Silica Sands LLC for transporting frac sand from a new processing plant at Northern Wisconsin. Consequently, Canadian National will invest $35 million to build rail infrastructure in Wisconsin to serve Superior Silica and other business prospects.

Canadian National’s $35 million project includes 40 miles track restoration work between Ladysmith and Barron, improvement of rail and replacement of railway tie, repair culverts and bridges, and enhancement of rail services across the Wisconsin network. The Barron Subdivision will connect to Canadian National’s North American rail network at Ladysmith and will be in service later this year.

Currently, Superior Silica’s 85 acres of plant remains under construction. The company is also constructing a rail storage facility neighboring Canadian National’s Barron Subdivision. Upon construction, Canadian National is expected to ship 2.4 million tons of frac sand per year from the new facility.

We believe growing demand for natural gas and petroleum products are potential factors driving demand for frac sand, which is used in hydraulic fracturing in the petroleum industry. Over the near term and beyond, we expect this demand to remain strong propelling potential business opportunity for Canadian National.

However, headwinds related to fuel cost, lower-utility coal shipments, poor U.S. grain export along with lower U.S. corn production and competition from peers like Canadian Pacific Railway Ltd. ( CP - Analyst Report ) remain near-term concerns.

We have a Neutral recommendation on Canadian National supported by a Zacks #3 Rank (Hold).