From a DM&E news release, verbatim.

November 26, 1997

DM&E ANNOUNCES SOUTHERN ROUTE IN WYOMING EXPANSION PROJECT

FOR IMMEDIATE RELEASE:

(Rapid City, SD) -- The Dakota Minnesota & Eastern Railroad today announced that it has selected the southern-most corridor from among the three potential routes it had been studying for building its extension into Wyoming's Powder River Basin. The southern corridor parallels much of the Cheyenne River drainage from Wasta, SD to its entrance into the coal producing mines of the Powder River Basin near Black Thunder mine south of Gillette, WY.

"The southern corridor has within its borders more alternative alignments from which to choose, allowing a greater degree of flexibility in addressing landowner, environmental and other issues," said DM&E President and CEO Kevin V. Schieffer in making the announcment. "Additionally, it provides a more efficient route, significantly reducing transit time from earlier projections and consuming considerably less diesel fuel in the process." Schieffer noted that the southern alignment required greater capital costs. "But in the end, we are convinced this is the correct decision."

Schieffer noted that within the southern corridor there are many alternative alignments, and said that the railroad would immediately begin its next level of detailed analysis to determine which individual alignment from among the alternatives is to be the preferred alignment. When that process is completed, the application for regulatory approval will be filed.

A detailed newsletter explaining the route selection and subsequent process is attached.

[the newsletter follows]

November 25, 1997 - No.3 DM&E NEWSLETTER

"PRB PROGRESS"

REGARDING DM&E RAILROAD'S PROPOSED

ROUTE EXTENSION INTO WYOMING

ROUTE SELECTION TRIP REPORT

Our latest trip into the field for on-site meetings with landowners, environmental and engineering field work, and community meetings continued through three weeks of October and almost 4,000 miles in and around South Dakota and Wyoming. We had follow-up discussions and public informational meetings in November, as well. As I mentioned in the last newsletter, the purpose of the trip was to determine with more definity the routing corridor most likely to be developed. Whether it was people encouraging us to come their way for jobs, economic development, or other reasons, or whether it was landowners discouraging us from coming on their property, people want information on some kind of decision as soon as possible so they can plan accordingly.

_North._ When we began this process, we reviewed reasonable corridors for where and how we could build a rail extension from our line into the Powder River Basin. We started with three general routing corridors -- the Northern, Middle and Southern corridors. In our September newsletter, after my initial round of meetings and site visits, we sidelined the Middle corridor and stopped development efforts related to that project. Today we have reached the stage that we are able to do the same with the Northern corridor. Unless unforeseen issues manifest themselves on the Southern approach, we are not going to spend additional resources on further developing the Northern corridor.

_South._ We are going to build to the South. But one of the many things I learned on this last series of meetings and site visits is that there remain many alternatives to consider with in the Southern corridor. Indeed, that is one of its greatest attributes -- more flexibility. It is clear to me that the final aligment is likely to differ significantly from the original "rough cut" alignment with which we began. We expected that the line would change, as mentioned in one of the earlier newsletters. But I was not expecting that there would be so many options on the Southern corridor, or that they would provide as much flexibility as they appear to at this point. There are enough new alternatives to consider that the second round of map development is taking considerably longer than expected. We had hoped to distribute a second edition of maps by this time. But because of the number of routing alternatives and their distance from the original alignment it is difficult to delineate them all. But we will continue working to develop a reasonably comprehensive set showing the various options under consideration, and will distribute them when they are completed.

_Routing Alternatives._ Many of the alternatives on the Southern route came from on-site visits and landowner discussions. The original alignment followed the Cheyenne River beg grade almost exclusively -- which has obvious benefits for railroad operations in that it would be a very gentle, slightly downhill grade for a majority of our loaded traffic. Its biggest problem, not surprisingly, is that it often goes through rich, irrigated bottom land, generally on less stable soil without very much room to maneuver. So one basic alternative is to get the railroad up higher into the very wide flats that run near the river. Unfortunately, though, these flats are not connected throughout the entire route. They spread out in a series of plateaus, separated by wide draws. To get from one flat to another requires grade deviations which are always problematic to rail operations within the series of long, open flats at the higher elevations, however, there is a great deal of latitude. The flats provide a more stable soil base and literally miles of opertions in any direction for specific route placement. This gives us more flexibility to deal with landowner, environmental, engineering and other issues. Also, there are areas where landowners have expressed a preference for us to use the bottom river grade if at all possible. So some combination of the flats and river grade is being considered, as well.

Another option we tested earlier which we again re-evaluated was to utilize our existing line from Oral, SD to Rapid City, and east from there. The biggest obstacle to overcome is grade. The grade problems there were tooo severe to efficiently operate a modern railroad of the type envisioned in this project. Other suggestions, including getting fuuther away from Highway 450 in Wyoming and in possibly utilizing the old abandoned Highway 79 roadbed in South Dakota are being explored. Another suggestion was to utilize portions of the abandoned state-owned rail grade in South Dakota, as well. All reasonable options are being considered. The work product of the next map will identify as many alternative routing options as practicable for the Southern route. The only thing for certain at this point is that the next draft will differ significantly from the first draft alignment.

WHY SOUTH?

The Southern route provides the highest degree of flexibility to address landowner issues along the way, and seems to have less of an impact on neighboring landowners. This flexibility is a key consideration in the decision. Within the Southern corridor, there are real alternatives. If there is an insurmountable problem on one alignment, be it a landowner issue or environmental concern, there are more alteratives than is the case on the Northern corridor. It also allows us a higher degree of probability in finding more willing sellers than would be the case on the Northern corridor. The capital costs for the Southern corridor are considerably higher. But, while the Southern corridor involves more miles of new construction, it involvees fewer overall miles to market than the Northern route, thereby generating some operating savings and more efficient service.

_Landowners._ Also, on the Southern route I think there is a greater potential to define the concerns and appropriately compensate for more landowner impact issues. That is not to suggest that I have any fanciful notion that all landowner issues on the Southern route have easy answers. But a greater percentage of landowners concerns can be more readily addressed on the South route than on the North. Based on my personal discussions, there are more landowners on the Southern route who see a potential to work with us and to participate in the economic advantages of the project. We are committed to work very closely with those landowners who are interested in making this project an opportunity. Landowners will find that it is an economic opportunity for anyone seriously interested in pursuing it as such. I have talked to enough landowners to know there are many out there interested in seeing what exactly it is that we will offer. As soon as we make a determination as to a specific route we can begin the process of formulating those offers, as discussed below.

WHAT NEXT?

Where do we go from here? As I mentioned, the next step is to fully identify the number of alternative routing options to be considered. As the map is coming together now on the Southern corridor, it is beginning to look like a bundle of long spaghetti stems criss- crossing each other within a corridor that can sometimes be almost 10 miles in width. Once they are all identified, we will make comparisons based on our field notes, aerial photos and other mapping and related data. Then we will pick from the spaghetti strands that route which seems to make the most sense. In doing that we will consider things such as environmental concerns, construction costs, operating conditions, landowner issues, economic development potential, community preferences, safety issues and customer service.

_Compensation._ routing alignment analysis will be ongoing. We will start with an identified proposed alignment, and solicit comments. At the same time, my currect thinking is to begin the process of negotiating with landowners on specific parcels of land--though that depends on landowner preferences. Like many other aspects of our approach on this project, I expect this part of the process to be significantly different than has been the practice in the past. I believe the more normal approach on a project of this type is to wait until receiving final regulatory approval on a designated route alignment before hiring appraisers to make a determination as to what it is worth. That is a logical approach in that no one can be certain which alignment is to receive final approval until after the construction permit is received. But the problem with that approach is that landowners will be left in the dark, guessing as to what we are prepared to offer them until final approval is granted. From a practical business standpoint, I would rather have landowners supportive because they can see black on white committments as to: (a) how the rail will be designed on their property (crossings, etc.) and (b) how much they will be compensated. Done correctly, there should be landowners who want to make certain that we build on their property so they can participate in the compensation package. I am hopeful we can negotiate a package that gives landowners an incentive to help push the project to completion because of a mutual interest rather than opposing it because of uncertainty. I expect many people, even if they ultimately reject the compensation package being offered, would at least like to know what we are prepared to offer. In a landowner's shoes I would prefer that to the continued level of anxiety because of the uncertainty. It is my belief that is the biggest reason for the normally overwhelming landowner opposition in these cases. Nearly every railroad built in recent decades seems to have involved virtually unanimous landowner opposition. If landowners are left to guess what they will receive at the end of the day, opposition is about the only alternative out there. So I would like to develop a procedure to be able to tell landowners up front what they can expect, which they can reject or accept.

To do that, I expect one of the first steps necessary would be to do a basic appraisal of (1) land value of land used for the railroad, and (2) land value impact on the remainder of the property, where this is applicable. The combination of these two factors (or whatever is legally considered to be "fair compensation") would represent a base amount. In addition to that base, we would add a premium compensation/income component for those interested in turning this project into a landowner opportunity. The structure and amount of that premium component I expect will require considerable landowner input in order for it to be effective.

_Landowner Advisory Board._ We are not wed to any particular approach in either defining a fair value "base" amoug or defining the premium compensation/income component for participating landowners. The only thing I am committed to is that early support is worth more to the project, and will always -- under any circumstance -- demand the highest level of compensation. That is purely in the form of incentive in excess of fair market value for early agreements, as outlined in the second newsletter. In no circumstance will even the most adamant opponents be offered less than fair value. On the other hand, I am determined that any "hold out" value approach will not be rewarded. This is not to suggest a "take it or leave it approach." I expect detailed negotiations. Legitimate concerns will take time to address. Some deals, because of their more complicated nature, are going to take longer to negotiate than simpler deals. It is clearly going to be a difficult process that requires judgement fairly excercised on both sides. I look to landowners to help advise us as to how we should sort this out. Many landowners I have talked to suggested we simply make an offer when we are ready, and they would advise us as to whether it was something that interested them or not. Others have suggested involving an Advisory Board of a certain number of landowners and/or disinterested parties. I would be happy to do either, or perhaps both. If there is considerable interest in seeing a landowner advisory board to help determine the best way to develop a compensation and incentives package, we will do that. We will remain responsible for developing our own procedure and the offers which flow from that. But there are many ides I have heard and I would like to develop a representive sounding board of landowners interested in working with us to make this a truly meaningful and positive economic opportunity for affected landowners. It would be very helpful to have the participation of affected landowners in the process by which we determine how to adequately compensate them, and give us ideas on how to provide meangingful incentives. It might also be a useful mechanism for landowners to understand what the railroad can and cannot do, and why. This may be a time-consuming process, and I would not expect it to be done for free.

CLOSING THOUGHTS

In the past several months I have gotten to know on a personal basis many of the landowners, business and community leaders affected. I understand clearly that this decision disappoints many friends on the Northern corridor who encouraged us to build there. I also understand that it will disappoint many landowners along the Southern route who still have concerns we might come through their property. But I also know landowners along the Southern route who understand the opportunities that this project can bring -- to both communities and landowners interested in the potential for participating in the economic benefits of the project -- and are interested in working with us to maximize that potential.

We will continue to offer the opportunity to work with affected landowners to both mitigate the concerns and create opportunities for economic benefit. But with this clearer focus on the Southern corridor, we will also begin more detailed coordination with the communities and area leaders to design the project in such a way that positive area impacts can be maximized to the greatest degree possible. The project carries with it exciting opportunities, and we want to develop it in a way that best fits the communities and landowners affected.

Sincerely,
Kevin V. Schieffer
President and CEO