EP.3 - Canadian Defence Headlines - Aug 27

Hello everyone, I'm Kyle from Vimy Forge, back with this week's Canadian defense headlines as of August 27th, and our perspective on why they matter. I know for me, it certainly felt like a quieter week on the defense headlines side, with news cycles being dominated by the trade and tariff talks, but that doesn't mean that the quality and importance of the defense news we did get is any less worth diving into. This week we're talking briefly about tariffs, then we'll switch gears to energetics, ice breakers, army innovation, base upgrades, and new CBRN protective gear. Let's get into it. Canada U.S. tariffs put supply chain resilience back in focus. We'll start with the story dominating headlines well beyond defense this week, the latest escalation in trade tensions between Canada and the United States. The U.S. has imposed new tariffs, affecting billions of dollars of Canadian goods, and Canada has responded with countermeasures and additional support intended to help Canadian businesses manage the disruption. I don't want to spend too much time talking through the tariff numbers themselves. There's plenty of coverage available for that already. For us, the more interesting question is what this means for defense. Canada and the United States have spent decades building deeply integrated industrial and defense supply chains. That relationship isn't suddenly going away, nor should we want it to. The United States will continue to be Canada's most important defense partner. But this week is another reminder that businesses can't control what happens at the political level, and that brings us back to something we talked about on the podcast last week when we discuss Canada's growing emphasis on relationships with middle powers. So what? The lesson here isn't that Canada needs to become combative with the United States or try to disentangle itself from our closest ally. It's that resilience has to be designed into our defense industrial base. Governments change, policies change, trade relationships change. As business professionals, we can't predict or prevent those decisions. What we can do is build supply chains that can absorb them. That means understanding where Canada has critical dependencies, developing domestic capacity where it makes strategic sense, and building deeper relationships with reliable partners who can provide alternative sources of supply and alternative markets. It ties directly back to middle powers conversation from last week. Canada needs relationships with countries that we can depend on while building enough diversity into those relationships that no single country can use as a critical dependency as leverage. Defense sovereignty doesn't mean producing absolutely everything ourselves. It means ensuring that a political decision somewhere else doesn't suddenly leave Canada without something critical. Our next story is potentially a very tangible example of that. Promising New Brunswick energetic story gets a little more complicated though. Our next story is an interesting one because it changed fairly dramatically over the course of about 24 hours. On Wednesday of this week, it appeared that New Brunswick had landed a potentially significant new piece of Canada's defense industrial base. Canadian company Nalagex announced plans for a major energetic manufacturing facility on approximately 1500 acres near Belldoon, New Brunswick. The proposed facility would manufacture TNT and other energetic materials used in artillery, bombs, and other munitions with additional potential applications in Canada's mining and construction sectors. And Nalagex was speaking pretty confidently about where things stood. CEO Patrick Gagnall said the company had considered locations in several Canadian provinces and two US states before selecting New Brunswick. Talking about the strategic importance of the project, he said, "We're going to bring back balance into the market." Nalagex says the proposed facility would eventually produce around 10,000 tons of TNT annually, which Gagnall argues would effectively double current NATO production capacity. That's a company estimate, but it gives you an idea of the scale that they are envisioning. Then, within 24 hours, on Thursday, Premier Susan Holt puts some pretty significant breaks on the story. Speaking to reporters, Holt was very clear. There is no deal in place. There is no deal locked in. She went further, saying the proposal hasn't progressed further than conversation at this point. The province has identified the land and is prepared to hold it in reserve while the proposal progresses, but it hasn't transferred the property. Environmental, economic, and community impacts still have to be assessed. Consultations need to occur, and Nalagex must secure a credible operating partner. D&D has also confirmed that neither the department nor the Canadian Armed Forces has made any formal or informal commitment to purchase Nalagex products. So what? What initially appeared to be a great news story for the Atlantic Canadian defense sector has become a bit of a question mark. There's clearly a potentially significant project here, but there's still a lot of information that's fuzzy, and the company appears to have gotten ahead of itself on where the provincial process actually stands. The underlying opportunity, though, is still worth paying attention to. Nalagex has dependencies when it comes to the energetic materials required to manufacture of munitions. If we're serious about rebuilding sovereign ammunition capacity, we have to look further upstream than simply assembling the finished shell, and Bell Dune remains an interesting potential location. It's a deep-water port connected to road and rail infrastructure with access to both Canadian and international supply chains. If upstream energetic material production were eventually established there, you could start to imagine other manufacturers locating around that capability and adding subsequent stages of production and possibly even innovation. So the opportunity isn't necessarily just one factory. It's whether a facility like this could become an anchor around which Canada builds more of the munitions supply chain domestically. For a region of New Brunswick that lost a significant military presence when CFB Chatham closed, the possibility of defense activity and investment returning to the North Shore is worth watching. But right now, potentially is the important word. There is still a lot we don't know, and clearly some daylight between how the company initially presented the announcement and how the government of New Brunswick is characterizing where things actually stand. We'll keep an eye on the story, provide updates as the picture becomes clearer. For our next story, we move from a potential sovereign capability to a very large confirmed one. Davy Lands Canada's $11.3 billion icebreaker program. The government of Canada has awarded Chantier Davy an $11.3 billion contract to build six new world-class icebreakers for the Canadian Coast Guard. These will be polar-class three vessels built at Davy's Livy Shipyard in Quebec. Canada is expected to begin in 2027 with the first vessel targeted for delivery approximately five years later and the entire fleet expected to be in service by 2038. The government has also been explicit about Canadian content, including the use of Canadian steel, maximizing opportunities for domestic manufacturers, suppliers, and SMEs. So what? There are a few things we really like about this announcement. First, we're putting this capability into the hands of a Canadian prime manufacturer. Davy now brings some genuinely world-leading icebreaker expertise to that equation. Davy acquired Helsinki Shipyard in Finland, bringing one of the world's most experienced builders of ice-capable vessels into the broader Davy organization. That matters because relatively few countries have deep expertise in building vessels capable of operating effectively in the conditions Canada faces in the high north. There's also a broader shift happening around the Coast Guard. These roles becoming increasingly connected to Canada's defense, security, and Arctic sovereignty posture, and these vessels represent a major long-term investment in Canada's ability to actually operate in the north. Six ships is the same modern class, and six ships in the same modern class should create an economy of effort that extends well beyond the initial build. Planning, maintenance, sustainment, parts, deployment, and crew development can all benefit from having a common fleet. For Canadian SMEs, the question now becomes where do they fit? One of the conversations we're looking forward to having here at Vimy Forge is understanding from Davy what innovative Canadian SMEs can contribute to the successful delivery and sustainment of this program. This is an $11 billion Canadian shippling program shouldn't just produce six ships. It should leave Canada with a stronger industrial base when it's finished. Next up, rebuilding the infrastructure behind the Canadian Army, construction has now begun on the first phase of an approximately $871 million recapitalization for the range and training area at Fifth Canadian Division Support Base in Gage Town. The first phase includes work on roads and bridges, range modernization, fire break infrastructure, and improvements to training and support facilities. The initial construction contract was awarded to New Brunswick Company, K-Line Construction, meaning some of that defense investment is already beginning to flow through the regional economy. But despite the location, this isn't really just a New Brunswick story. So what? Gage Town is home to the Canadian Army's Combat Training Center, along with major schools responsible for training personnel in armor, artillery, infantry, tactics, and military engineering. The people trained there go on to serve throughout the Canadian Army. So improving the infrastructure at Gage Town ultimately improves Canada's ability to train soldiers nationally. There's also a bigger issue here. Canada is dramatically increasing defense spending after years in which we simply didn't invest enough in some of the basic infrastructure required to support the force. That creates a deficit that now has to be addressed. Back in June, Colonel Paul Williams, the base commander of CDSB Gage Town at the time, welcomed our Vimy Forge cohort for a day of interaction and learning. In response to a question that was posed to him, on what he would most like to see upgraded when he returned in five years to the base, he responded the service roads for the base. We were all a little shocked, but his answer ties directly to the infrastructure deficit we have to work to catch up on as a nation. Buying a new vehicle, a weapon or a sensor is only one piece of capability. You need ranges where people can train on it, you need roads and bridges capable of supporting modern equipment, you need facilities where new tactics can be deployed and exercised. And as Canada asks its army to absorb new technology at a much faster rate, that training infrastructure becomes even more important. So while an 871 million dollar range recapitalization might generate the same headlines as a new ship or aircraft, it's part of actually turning defense spending into more capable Canadian army. Next up, Minerva keeps moving. We've got a quick follow-up to a program we discussed last week. The Canadian army has put another Minerva requirement into the market this time through innovative solutions. Canada, the challenge is looking for a domestically produced uncrewed ground system for tactical cargo movement. The problem the army is trying to solve is straightforward. Modern battlefields are increasingly transparent, persistent sensors and precision weapons make moving people and supplies towards the front increasingly dangerous. The army is therefore looking at uncrewed systems capable of moving supplies and munitions forward without necessarily exposing soldiers. The opportunity is targeting technologies at TRL5-9 using an innovative solutions Canada contracting pathway for prototype development. I covered the broader so-what for the Minerva initiatives last week that have started to roll out, so we won't revisit that this week in detail. But for those listening to this episode that haven't heard about the EGS for tactical cargo movement challenge, you can find it on the ISC website. Next, a Canadian SME story that we're particularly interested in following. Wuxley takes the next step towards applying CBRN protection to DND. Toronto based Wuxley, an a member of inaugural Blackflight cohort here at Vimy Forge has been awarded the initial pre-production assessment contract by Public Services in procurement Canada on behalf of the Department of National Defense for Chemical, Biological, Radiological and Nuclear Protective Suits. Wuxley will manufacture 12 pre-production sample uniforms. DND supplies the specialized protective fabrics as government supplied material while Wuxley is responsible for cutting, sewing, assembling, labeling, packaging and delivering the completed garments. These samples will then go to Defence Research and Development Canada in Alberta where they'll be put through Canada's testing program. Successful completion of this assessment is the gate that Wuxley needs to clear before moving toward the full production opportunity. So what? We spent a lot of time talking about helping Canadian companies get their technology in front of Defence, tested against real requirements and ultimately into production. We spent a lot of time talking about helping Canadian companies get their technology in front of Defence, tested against real requirements and ultimately through procurement. This is a very practical example of what that process can actually look like. Wuxley competed through an open solicitation that considered technical merit, socio-economic criteria and price. They've now been contracted to manufacture the pre-production articles. Those articles go to DRDC for testing against Canada's requirements and if successfully clear that gate, they move forward to the main production opportunity. There's no guarantee at this stage. They still have to prove that they can deliver what Canada requires, but this is exactly the progression we want to see more Canadian companies navigating, compete and then build, test, validate and if successful, move into production. We'll be watching this one closely and hopefully we'll have more details to show on the scale of the opportunity in the future. Before we wrap up, one quick update from the wider Canadian Defence Innovation ecosystem. NATO Diana is moving towards the final selection stage of its 227 accelerator cohort. Our understanding is that the final phase of selection begins in about 10 days and it's genuinely exciting from our perspective to see Canadian companies continuing to get pulled forward through that process. We're going to be watching these final selections very closely. For those Canadian companies who applied to Diana this year, but maybe didn't make it through to the upcoming final stage, we want to know who you are. The Mee Forge is continuing our national mapping exercise of Canadian defence and dual use companies through our expression of interest. So whether you're still progressing through Diana or your journey ended earlier in the process, if you're developing technology relevant to Canadian and NATO defence requirements, we'd encourage you to add your company to the map. You can find the expression of interest live on our website, vimmyforge.ca. And finally, when the final Diana cohorts are announced, we'll see a strong Canadian contingent represented. When you put this week's stories together, resilience really is the common thread. The tariff situation reminds us why Canada needs resilient supply chains and diverse international relationships. The developing Nalagax story highlights both the opportunity and the complexity involved in trying to establish sovereign capacity around critical defence inputs. Davy shows what happens when major procurement is used to build Canadian industrial capability. Minerva, Gage Town, and Wuxley show three very different parts of the capability pipeline, getting real military requirements into the market, building the infrastructure needed to train and giving Canadian companies a pathway to prove that they can deliver. None of these things on their own creates defence sovereignty, but together, there are pieces of a much more resilient Canadian defence industrial base. Ultimately, that's what we're looking for. Not just more defence spending, but spending that leaves Canada with stronger companies, stronger supply chains, and better capability for the Canadian Armed Forces, and Coast Guard. That's it for this week's Canadian Defence Headlines. I'm Kyle from Vimy Forge. Thanks for listening to this episode of news from Forge. Back next week. Take care.