The economies of Canada’s territories are suffering as a result of the sharp decline in prices for oil, diamonds, gold and base metals.

But forecasters expect that resources companies will stay the course through the downturn, insulating these resources-heavy regions somewhat in the months ahead.

The Northwest Territories, the Yukon and Nunavut had been riding on the wave of last year’s upward spike in commodities prices. And the reality of crumbling commodities prices is sure to take a toll on the territories’ 100,000 residents, who live dispersed across a frozen tundra larger in area than India. Among the territories, the N.W.T. will be hardest hit, as it is the most dependent on resources, says Carl Sonnen, of Informetrica Ltd., an Ottawa-based economic research company.

But the murky short-term outlook for commodities won’t be completely devastating for the North, says Eric Howe, an economics professor at the University of Saskatchewan in Saskatoon, who researches the Arctic economy. While new projects will be put on hold, Howe doubts current resources extraction operations will be completely halted — even if they are operating at a loss. Because of the high capital costs involved, shutting down mines entirely will result in even greater losses. In the fourth quarter of 2008, there was little change in unemployment rates in the region.

“Firms that are in the investment phase are going to postpone things for a while,” Howe says. “But I don’t see the economies up there being hurt a lot.”

> N.W.T.: In recent years, the N.W.T. has led Canada in real GDP growth, with a rate of about 13.1% in 2007, just ahead of Nunavut, which came in at 13%.

The N.W.T. is known for its three diamond mines, but all are either scaling back production or putting expansion plans on hold. Output at Ekati, owned by Australia-based BHP Billiton Ltd., and Snap Lake, owned by the South Africa-based De Beers Group, has declined.

BHP Billiton, blaming lower grades of ore, cut production at Ekati by 30% year-over-year in the fourth quarter of 2008.

Lower demand is behind De Beers’ decision to cut output at Snap Lake by half until April, and to lay off 105 contract employees. Also, about 400 workers will have to take unpaid leave when the company closes the mine for 10 weeks this year.

Meanwhile, Diavik Diamond Mines (a joint venture by London-based Rio Tinto PLC and Toronto-based Harry Winston Diamond Corp.) has put a $50-million diamond project on hold, blaming the recession.

The mines collectively support Yellow-knife’s so-called “diamond row,” which was hit by the closure of a diamond cutting and polishing plant owned by New York-based Tiffany and Co. that is scheduled to take effect on Feb. 19. It is the fourth such closure of a polishing plant in the N.W.T. in a decade.

On the upside, low energy costs, combined with the lower Canadian dollar, are helping the flagging diamond industry, says Dennis Bevington, NDP MP for the Western Arctic.

Mineral exploration delays have led to layoffs in other sectors, including aviation. Discovery Air Inc., based in Yellowknife, recently received a bailout package from the territorial government. Its five subsidiaries include Great Slave Helicopters Ltd. and Discovery Mining Services Ltd. Expediting services, which provide food, logistics and equipment to the exploration industry, will also be hurt this year, Bevington says.

Tourism, while growing, still plays only a small role.

> Nunavut: The downturn in the resources industry hasn’t just hurt the N.W.T. Toronto-based Tahera Diamond Corp., which operated Jericho, the first diamond mine in Nunavut, located about 400 kilometres northeast of Yellowknife, is now under creditor protection and has ceased production. Tahera is seeking a buyer to rescue it from bankruptcy.

But it’s not all doom and gloom for Nunavut’s mining sector. Toronto-based Agnico-Eagle Mines Ltd.’s Meadowbank gold project near Baker Lake is expected to begin operation in 2010. And Denver-based Newmont Mining Corp. is planning to proceed with caution on the construction of its gold mine in Hope Bay.

Other resources, still undeveloped, include oil and gas reserves, which Nunavut says are similar to Newfoundland’s. Like the Yukon, a large chunk of Nunavut’s economy is dependent on the public sector, including local governments, health, social services and education. The fishing, fur and sealing industries are worth about $40 million a year. Other sectors include tourism, with roughly 18,000 visitors a year, and arts and crafts production.

@page_break@> The Yukon: The Yukon government had expected GDP growth to be about 3% in 2008. The public sector — including government, health, education and social assistance — comprises about 35% of GDP and employs roughly 7,000. By comparison, the private sector employed about 7,900 in December 2008, according to Statistics Canada’s Labour Force Survey. The Yukon’s population is small but growing, and was about 33,300 as of June 2008, an increase of 3.4% from the previous year.

StatsCan’s survey of 3,000 businesses in 2008 found that the largest private-sector industry in the Yukon is retail trade. Many of the jobs available are in low-paying service sector jobs, such as accommodation and food services.

The construction industry and the opening of Vancouver-based Capstone Mining Corp.’s copper/gold/silver Minto mine in central Yukon have also been drivers of growth. But overall investment for mining exploration in 2008 showed a decline, although it remained more than $100 million.

Another leading sector, in terms of sheer numbers of jobs, is tourism, says Larry Bagnell, Liberal MP for the territory, although the industry has been hit hard by the U.S. recession. The number of U.S. residents, who account for roughly 75% of total border crossings, was down by 8.7% in 2008. IE