The American-financed company behind a controversial proposal to mine Ontario limestone says it planned, from the onset, to turn prime farmland into a quarry.
In an exclusive interview with CBC News, Joseph Izhakoff, an executive with The Highland Companies, said the company bought thousands of acres near Shelburne, Ont., in order to secure the quality limestone beneath the fertile soils.
"Look, we…absolutely wanted to build a quarry. There's no question about it," he said.
The interview marks the first time that high-powered U.S. investors behind The Highland Companies have spoken publicly about the quarry application and the opposition that is building against it, including complaints about a lack of transparency.
CBC News spoke with Izhakoff and fellow principal John Scherer on the company’s property in Melancthon Township, 114 km northwest of Toronto, where it is currently operating Ontario’s largest potato growing and packaging operation.
"I can't say what drives people to be, to have a vehement reaction to us," said Florida-based Izhakoff, who describes himself as a principal of the company and one of managers of the quarry application. "What I would say is, I think the size of this (quarry) project is reflective of the fact that there is a substantial need and there is a substantial resource here. And I think the responsible development is to develop it and to do it the right way."
Stones and spuds operation
In March 2011, a year after the release of a provincial government report that called for more and closer sources of gravel, The Highland Companies formally submitted an application with the Ontario Ministry of Natural Resources. It proposes to peel back its potato fields to mine more than 2,300 acres (937 hectares) of a high quality limestone called Amabel dolostone.
The company filed more than 20 reports from consultants, totaling 3,100 pages, in which it described a complex plan to excavate up to 1 billion tonnes of stone roughly 60 metres below the surface.
It proposes to mine the limestone over 50 to 100 years, digging in 300-acre (121-hectare) sections. Once a section had been mined, it would be rehabilitated by the re-laying of soil on the quarry floor, thereby returning the land to farming. Water, however, would continue to be pumped out, as it seeped into the pit — up to a maximum of 600 million litres per day.
"We’ve studied the water in this area. We’ve been monitoring it for many, many years," said Izhakoff. "The quarry doesn’t get opened all in one shot. It’s a phased process. So part of that process is putting in monitoring wells, going slowly, moving carefully, monitoring it as we go. So we’ll learn a lot as we go and we’ll have the contingencies in place to make sure that it’s consistent with what our research and modeling told us."
As for returning previously-excavated soil to the bottom of an exhausted quarry, Izhakoff said the company hired "what we think are the best experts in Ontario and they tell us we can return it, that you can create the soil profile on the floor of the quarry" returning the area to agricultural land.
Ohio-based Scherer has a background in environmental and hazardous material remediation. He helps manage the farming operations for Highland Companies and characterized the plan as a "good balance between farming and aggregates" because potatoes would continue to be grown on sections that weren't being mined for limestone. (Currently, the Highland Companies grows, packs and sells approximately 100 million pounds, or 45.4 million kilograms, of potatoes annually, according to Scherer.)
It’s an ambitious plan that has never been tried on such a scale and by a company that has no experience in the quarry business. Izhakoff stressed that The Highland Companies would hire the "A-team" of operations and that the quarry, if approved, "will be the envy of quarry operators."
Ontario's Ministry of Environment isn’t convinced. This summer, it expressed concern over the environmental soundness of the plan. Last month, it ordered that the proposal undergo a comprehensive Environmental Assessment Review, a process that could take several years.
"So that's something that's a little bit new for us, a little bit of a surprise" admitted Izhakoff. "We feel like we’ve been developing this project along the roadway that was laid out for us and now…it’s a little bit of a left turn. So we're still studying that and trying to understand what that means for us."
Part of the "roadway" to which Izhakoff referred is a provincial study published by the Ontario government in 2010. "The State of the Aggregate Resource in Ontario Study" – released in 2010 by the Ministry of Natural Resources and known as SAROS in the aggregates industry — outlines the projected increase in gravel required for the highways, hospitals, homes and water systems of an Ontario whose suburbs are expected to continuing expanding and whose city centres are densifying, as more immigrants head to the province.
According to SAROS, Ontario has consumed 164 million tonnes of aggregates per year over the last two decades. That number is expected to rise to 186 million tonnes per year over the next twenty years. The province is also encouraging the industry to develop "close to market" strategies, which would reduce the cost of transporting the heavy gravel to the growth areas in Southern Ontario. Ideally, high quality gravel — like Amabel dolostone — would be sourced 75 kilometres or less from the Greater Toronto Area.
High quality limestone exists throughout the southern part of the province, however much of it is located in the Niagara Escarpment, which is a protected zone, and in the Green Belt.
The quarry proposed by The Highland Companies lies just west of the Niagara Escarpment, and close to major driving routes and highways.
Said Izhakoff of the company's search for limestone in Southern Ontario: "We spent a lot of time on a selection process … selected out certainly areas in which you can't build a quarry. So there are built up areas. We selected out the Niagara Escarpment. We selected out the Green Belt. And what we were left with was looking at prime agricultural lands."
In addition to finding itself caught between two governmental mandates — environmental concerns and a need for new and closer limestone — The Highland Companies is being forced to contend with vocal, and growing, opposition from increasingly distrustful residents and cynical activists.
People don’t rally in favour of quarries, said Izhakoff. "People don’t see in their everyday lives and say, 'This is how it relates to my everyday life'. Certainly, potatoes is much closer to home."
According to at least half a dozen irate farmers who've signed affidavits, the promise of potatoes is the reason they sold or considered selling their farmland to a local man who said he was representing a group of investors.
Blake Irwin told CBC News he was approached in the autumn of 2006 by a fellow who "came down the lane and said, 'We are looking to put together a potato farm.'"
"He just said, 'I come into some large amount of money.' And that he had the ability to do what he had wanted to do for sometime: put together a potato farm.
"He was willing to pay extra, because he didn't want to take five years to put this thing together… he wanted to put it together quickly, if he could," said Irwin.
"And by offering more money, of course, then that could happen. If you’re just offering the going rate, you get a piece here and a piece there and you have to wait for them to come to sale."
Irwin adds that the man, an engineer called John Lowndes from the Orangeville, Ont., area, told him he was familiar with farms because of his grandparents.
Unsolicited, says Irwin, Lowndes dropped off a deposit cheque.
Though he and his wife Jan had been farming for 37 years, Irwin says they weren’t sure they were ready to retire. Cashing the deposit would have obligated them to sell.
Ultimately, the Irwins sold their 350-acre (141-hectare) HM Irwin Farms Ltd. in February 2007, moved away and retired from farming.
Other farmers tell similar tales of being approached by local real estate agents or by John Lowndes directly. One affidavit states: "John Lowndes told me he wanted us to teach him how to grow potatoes." Another states that "Lowndes also said to me that he was a potato specialist with Frito Lay in California. He also said he was buying up the land and intending to build a huge potato processing plant." There are tales of pressure tactics and cheques appearing from several numbered companies.
Highland Company principals Izhakoff and Scherer said the entity was transparent in its negotiations.
"I would say that when we were purchasing land, we were forthcoming about the fact that we were interested in farming, [and] the fact that we were interested in other types of development as well," said Izhakoff. "I would say that we have lots of folks who work with us, who sold their land to us and we have relationships with others who didn’t misunderstand. And we have a very easy relationship with [them] and they certainly aren’t feeling any sort of remorse about selling to us."
Added Scherer: "I believe the people that sold had an opportunity to ask whatever they wanted to."
Both principals — who are also investors — told CBC News they have been involved with Highland Companies since its inception five years ago. Both are listed as officers of one of the companies that bought land. However, neither Izhakoff nor Scherer was involved in the face-to-face negotiations with landowners that resulted in the multi-million dollar land assembly that occurred in Melancthon from 2006 to 2008.
Landowners told CBC News that via John Lowdnes, Highland Companies offered in the vicinity of $8,000 per acre. When asked to confirm total investments to date in Ontario, Izhakoff responded: "That’s not a number we’re prepared to share."
The company has confirmed that it has purchased a total of approximately 6,500 acres (2,630 hectares) of countryside in Ontario: 5,600 acres (2,266 hectares) in Melancthon Township and 900 acres (364 hectares) more in neighbouring Mulmur Township.
The tens of millions of dollars required for the land sales flowed through a series of numbered companies, set up mostly in Nova Scotia, which offers tax advantages for American investors.
Bankrolling — and controlling — the Highland Companies project is the Baupost Group, a hedge fund based in Boston, Mass., with assets of approximately $20 billion US.
As a private firm, the Baupost Group is not required to divulge its investments, except for those in publicly traded companies. It is known to be a "value investor", meaning it invests in areas or sectors that it believes are undervalued and whose worth is expected to rise.
The issue of how Baupost learned of potatoes and aggregate in Ontario remains murky.
"John Lowndes had a prior relationship with Baupost and brought this opportunity to them," according to a statement from The Highland Companies to CBC News. "John presented the business opportunity to Baupost, after which Baupost invested in Highland. John Lowdnes…was the one who conducted negotiations with sellers of the land Highland acquired."
The Highland Companies maintains that it has always been interested in three dominant industries in Melancthon township: agriculture, wind farms and aggregate.
"Look," stated Izhakoff, "Like I said, I think we were upfront with people to the extent they wanted to know what we were doing, they would know. I would also say that our sense is there are other aggregate operations here, that people know that this land has aggregate on it. That people know, as with windmills, that that’s an opportunity too. So, I would say that I think that we were upfront with people and that it’s common knowledge that there’s aggregate here in Melancthon."
Lyle Parsons, a local resident, would disagree vehemently. He says he had sold the family homestead to a company that said it was a potato operation. When he noticed wells being dug on his former land — he thinks to sample the limestone — he began to wonder about the intentions of The Highland Companies.
The shoe dropped, he told CBC News, when he saw archeologists in the fields. Archeologists are required to examine the soils for significant historical findings before a quarry can be dug.
Armed with photos, Parsons went to the local council in the summer of 2008 to warn that Highlands Companies may be opening an aggregates operation.
However, it wasn’t until September 2008 — almost two years after it had started its buying spree — that Highland Companies introduced itself formally to the local community and explained its intentions. In a letter to the mayor and council of Melancthon Township, John Lowndes wrote about potato operations, a plan to restore a railway from Georgian Bay to Lake Ontario and the company goal of creating a "diversified portfolio of sustainable local economic activities based on the area’s natural resources."
The following spring, the company sent a DVD and letter to households in Melancthon saying "our studies indicate that an aggregate project could add as many as 400 jobs to the local economy."
The Township of Melancthon invited Lowndes to appear before council in May 2009, but was informed that although he was "unable to attend…John does wish to meet with Council to discuss the economic future of the community."
Such a meeting never transpired. But Lowndes met the Township’s city planner and the following month — in July 2009, almost three years after it began assembling land — Highland Companies held an open house.
Though listed as the principal and sole director of the Highland Companies, Lowndes is no longer the company’s public face. When asked why Lowndes did not meet with council, Izhakoff replied: "I don’t know about that specific incident that you are talking about."
In addition to complaints about transparency, there are accusations that Highland Companies is planning to export aggregate to the United States, particularly if it succeeds in restoring a rail-line from Georgian Bay to Lake Ontario. The belief is that the company would load aggregate from Melancthon onto railcars which would deliver to ports on the Great Lakes, from where it would be shipped to the U.S.
"That’s not going to happen," Scherer told CBC News. "We said we were going to keep it in Ontario. And that’s our commitment."
"We are going to stay by our commitments with our employees and our farming. We are going to do the same with our aggregates. So it’s really a complementary business.
"If we can open that quarry corridor, it’s good for Ontario. We’re investing in Ontario and we think it’s good for Ontario if they had that rail because there’s opportunity for all kinds of businesses to grow around that corridor."
Izhakoff stressed that "the need is in the GTA (Greater Toronto Area). The critical demand that we’re serving with this quarry is [southern Ontario.]
" The Highland Companies estimates that the quarry project would create 465 jobs, result in $140 million in annual spending on salaries and operations; and contribute about $1 million to the township revenues.
"There’s no imminence to a license being granted," said Izhakoff.
With a provincial environmental assessment now ordered, the issue will remain unresolved for years and may find itself on the national stage, if issues such as fisheries and transportation are raised. That’s because these matters fall under federal jurisdiction.
Highland Companies has enlisted the services of lobbyists on the provincial and federal level, for which it has received much criticism, though it is not unusual for companies to hire advocates on their behalf.
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In the last few years, smaller quarry applications have been refused in Canada.
In 2008, an American company was denied its application to expand its basalt quartz quarry near Digby, N.S. It is suing the federal government for breaching the rules of the North American Free Trade Agreement, claiming more than $100 million in damages.
And this year, St. Mary’s Cement — owned by the American arm of a Brazilian conglomerate called Group Votorantim — filed its notice of intent to sue the federal government for damages of "not less than US $275M in compensation for the loss, harm, injury, loss of reputation and damage caused by or resulting from Canada’s breach of its obligations under Part A of Chapter 11 of the NAFTA." The company had wanted to build a quarry near Hamilton, Ont. The lands for that quarry had been assembled by Lowndes Holding Corporation, operated by David and Robert Lowndes, the brother and father of John Lowndes.
When asked whether the Highland Companies would pursue a legal suit should its application for the Melancthon quarry be refused, Izhakoff replied: "I'm not an expert on NAFTA."
"I would say that right now we are focused on trying to get our application approved. I think we have a very good proposal here. It’s a very balanced proposal. I think when we have a chance to show our engineering and science is good, people will get a chance to see that. So our focus right now is keeping moving forward."
Summed up Scherer: "Change is very difficult. And we know we’re bringing change. We understand that."
"Communicating is going to be…it’s a real challenge for us. This is a difficult project. No question about it."