You are right. Gen. Palmer's original intent was to build to Mexico City. However, he lost out to the AT&SF on Raton Pass, and that ended that hope. He then turned his attention west to the Royal Gorge, and again ran headlong into the AT&SF. This resulted in outright shooting hostilities. It was finally settled by the so-called "Treaty of Boston" whereby the AT&SF gave up their rights to the Royal Gorge in exchange for the D&RGW agreeing not to build further south than Espanola, NM, which they circumvented by backing the creation of a separate railroad -the Santa Fe Southern - from Espanola on into Santa Fe. After the terms of the Treaty of Boston expired the D&RGW absorbed the Santa Fe Southern. Curiously, the ex-AT&SF line from Santa Fe down to the mainline connection at Lamy, NM has the corporate name of - you guessed it -
Santa Fe Southern.
CJ