Without strong community support, I wouldn't bother.Some fair points with a few comments$3M is a fair cost for a full-on restoration of a line of that length and complexity (level crossing rebuilds) with contractors. There are ways to get the costs down such as turning it into a training project for mainline contractors etc and involving local volunteering groups with some tasks like lineside clearance, station restoration and so on, but it's prudent to not make assumptions like that when there doesn't appear to be visible community support for such a venture at present.
- $3M for a T&H is a bucket load, another $0.25k or more for a mainline connection plus I assume ongoing costs to keep it is an extra burden that is unlikely affordable in at least the early days. Cheaper to ship rolling stock by road for once a year heavy maintenance. I'd consider it a long-term goal and I'm still not sure its worth the cost as this line is only suited to DMU but I see your point on maybe running the odd special to Newcastle (Interchange).
Ongoing costs for a mainline connection would be born by TfNSW. This is the natural outcome as the turnout would be on their track and the interlocking + signalling integrated into their systems. This arrangement is identical to the one that V/Line and the Victorian Goldfields Railway have with their mainline connection.
In today's funding environment, presenting a more ambitious & expensive plan (i.e mainline connection) from the outset that also has a higher return on investment is actually more likely to get funding. Governments actually like announcing and funding bigger projects. It's a topsy-turvy world compared to the private sector. Given the bad press that the Newcastle light rail project has generated it'd be a good little project to take the heat off and perhaps try to renovate the image of the new 'Newcastle Interchange'.
Re: heritage DMUs - The Rail Motor Society is based out of Paterson in the lower Hunter Valley. They have a sizeable fleet of heritage DMUs available to run through services or hire out on a seasonal basis. Let them specialise in restoring and maintaining their DMU fleet and have the Toronto operation just hire them (or others from further away if that makes sense too).
Don't forget that loco hauled push-pull operations could be run as well - but that only makes sense if there's a mainline connection.
Look at Oberon, strong community support and still not yet opened a 11km section of track, however that project is far more complex with a number of points, shed requirements etc. However a commonality is the need to restore level crossings.
You a probably right, get govt support, reopen the line with mainline connection. Partnership with the RMS, build a secure storage shed at the Toronto end of the branch to avoid points or if need be a small siding at Fassifern, and rotate stock through.