If you are not going to use as a wood burning unit you can cover the vent with a fire retardant material such as sheet metal or just cover with Durock, see below. If you want anything to properly adhere to the brick it would be an option to screen it then scratch coat. I would just cover it with Durock cement board. Much less labour intensive.

seattlepioneer: I'm well aware of the clearances to combustible materials as specified in the installation manual. That's not what I'm asking. I want to build a framed wall if you will, that surrounds the outline of the fireplace opening (but lower in height). This framed "wall" would extend to the double wall studs on each side of the brick. The whole wall would be faced with cement board and then portions of it covered in tile, granite or marble, then a mantel installed over that. Basically, I just want to extend the firebox out into the room about the width of the brick that was removed when we demo'd the fireplace hearth and face.

This is an old converstion but would like to add a little. Here in New England, in expensive coastal homes, shiplap is classic(not a fad) on and around fireplaces, in living rooms, dining rooms, kitchens kitchens, and entryways/mud rooms. It is no more a risk than any other material as it is placed over the stone structure of the fireplace. It uses a fireproof adhesive that insulates against extreme heat and protects the wood. Using a gloss or semi-gloss paint will allow you to wipe off any soot/smoke discoloration that may occur down the road. Those referring to it as a material of poor people are out of touch or unaware of its historical use. The white pine of New England made the finest shiplap for homes as well as the whaling/fishing boats and battleships. The modern materials are of very high wuality and quite durable if you choose wisely. Disregard MDF shiplap unless you want it to look cheap or you need absolute uniformity. That wont give you the classic look and feel though. I suggest birch if its available, for its resistance to humidity and water. You can recreate any style home yiu want in any location. There are no rules about maintaining pueblo homes only in the south west, or a craftsman only in California and the midwest. Doing so is an exercise in suppressing your own creativity and vision. Be true to yourself and live your ideal life regardless of future concerns. Dont worry about what buyers may want in 5-10 years unless you are just flipping a home. Build what your best self belongs in.

All good suggestions. Thank you everyone. So we have had many discussions and have made some progress and now we are leaning towards the following. We are going to "cap" the ceiling at the triangle, just above the second beams. So we eliminate the high triangle, thus regulating the room temp better and allowing for lighting install. We will drop the fan lower, keep it centered, and add recessed lights on either side of the fan (front and back) on the flat/new ceiling. Add sconces above the mantle (wiring behind the new drywall). Rather than paint the brick and while we have scaffolding here anyway, we think we will box in the brick from new flat ceiling to the mantle (not with shiplap) and run trim down either side. We will then frame out a new mantle down each side and across the brick. We will keep the brick as is around the fireplace and on the hearth (I don't like the idea of floor to ceiling painted white brick and felt that since we use the fireplace we are better keeping natural brick so it won't show soot and dirt), but put a new piece of stone in for the hearth. Smooth the outdated plaster walls (since plasterer has to come for the new ceiling). Paint the ceiling, the trim and fireplace walls/mantle white, and the walls a soft gray (Edgecomb BM). Cap the track lighting unless we decide down the road we need it. I'd also love to consider refacing the brick with stone veneer but maybe not this time around. So yes, our budget is blown but it seems to be a situation of go all in or don't half spend. Trying to resemble something like this but not with shiplap and with our brick not whitewashed: Thoughts/feedback? Good news is that my contractor knows us and works slowly so I can modify as we go if something doesn't look right. I toyed with keeping beams but they really aren't nice beams. We've also done away with the wood beam mantle but I think if we keep the look more robust and less delicate that we might be okay -- more thick/shaker than formal crown. Also adding trim to the supporting beams that connect wall to ceiling to make them look more "finished" - they look like planks or 2x4s now and I never realized they were actually beams until we just put the window in and broke into the wall. They are just above the windows and you probably can't tell from the previous photos. Any thoughts - would love to hear them. You've really turned me around on the shiplap - thank you!