A young real estate man named John Ballaine envisioned a trans-Alaska route to the Yukon believing inland Alaska would "develop diversified resources including gold and other metals, timber, coal and agriculture to sustain the industrial population." In 1902 Ballaine and other highly optimistic Seattle businessmen invested $30 million into a new railway claiming, "The extraordinary powers of the road will enable it to bear all fixed charges and pay large dividends..." They issued 550,000 shares of common stock at $50 per share and 50,000 shares of five percent preferred stock (First Mortgage 5% 30-Year Gold Bonds).
A survey and construction party of thirty men arrived at Cook Inlet in 1903. This party was made up of a skilled locating engineer, topographer, assistant engineers, transit men and levers, chainmen, rodmen, axemen, cook and cook's assistant. Offices were setup in the Shackleford Mining Company house (in the future town of Seward). The crew organized a pack train for carrying equipment and supplies. The whole year was spent surveying the route. Seward was chosen as the terminal and the 412 mile railway would wind its way through the Susitna Valley and Broad Pass to the Tanana River and into the rich Matanuska coal fields. On August 27, 1903 the steam ship Santa Ana arrived with men and equipment. A 150 foot boat dock and general offices were then constructed in Seward to support the railroad construction effort. The building of the Alaska Center Railroad began.
The technique for laying track was very basic. The right-of-way had to be cleared, leveled and the road ballasted. Gravel was used as ballast for the base of the roadbed. In the rush to construct the railroad, untreated spruce trees were used because they were readily available at low cost. During initial construction, 55 pound rails was used. Unfortunately, this light weight rail warped easily because Alaska's extreme winters and permafrost hasten wear on the track. Today's roadbed is designed to deal with a wide variety of conditions including harsh Alaska weather.
Initial construction of the standard gauge line in Seward began on April 16, 1904. Workers began cutting hills, carving tunnels and building bridges. The Santa Clara arrived on April 23, 1904 and unloaded a 40 ton Baldwin locomotive. This enable supplies to be transported to the current construction site using the new rail. Soon the steam ship James Dollar arrived carrying two hundred tons of rail. By fall the rail reached Kenai Lake (18 total miles) and by December it stopped at Snow River (20 miles). These first 20 miles of railway were completed in less than a year, but cost an expensive $16,000 per mile.
In 1905 the steamer Santa Ana delivered a second locomotive to Seward. In August a third locomotive arrived on the steam ship Edith and was immediately put to work carrying supplies to the end of steel. In December the rail reached mile 44. Now six tunnels totaling four thousand feet would need to be cut. To accomplish this tremendous task, tunnelers worked twenty fours hours a day, seven days a week. The first tunnel was cut out by hand and at a cheaper rate than later machinery efforts.
Howard Clifford reports in his book Rails North, "By June 1906 Alaska Central had four locomotives, 30 flat cars, 10 box cars and cabooses, a snow plow and a large number of side dump construction cars and 350 horses." The latest addition, locomotive number 1 was a Portland 4-4-0 built in 1883 originally for the Northern Pacific. It would later be used for the Alaska Northern.
Before the end of 1906, all tunnels (except number four) were completed. Several bridges were built, but some were delayed due to a lumber shortage. When lumber shipments resumed in June 1907, tracked was laid to mile 50.
To combat a steep section between mileposts 50 and 51, a loop was constructed to lessen the grade. It proved to be an incredible engineering feat of its day and remained in use until 1951.
Construction progressed enough that large work trains could finally be used to transport men and materials. Fifty miles of rail were built, but still the Alaska Central never paid any dividends on its stock.
The project was wrought with financial problems and the camp at milepost 54 proved to be the last. The Alaska Central Railway finally went bankrupt in 1908. During the next three years, receivers attempted to reorganize without success. They finally succeeded in 1910 when it was reorganized as the Alaska Northern Railway Company.