De Beers suspends operations at Canada's Snap Lake diamond mine

(Adds comments from De Beers on profit outlook, adds mine contractor numbers)

By Susan Taylor

TORONTO, Dec (Shanghai: 600875.SS - news) 4 (Reuters) - De Beers Canada is suspending operations at its unprofitable Snap Lake diamond mine in the Northwest Territories due to poor market conditions, and said on Friday it will evaluate the Arctic mine's potential over the next year.

De Beers, 85 percent owned by Anglo American (LSE: AAL.L - news) and 15 percent by the government of Botswana, said work to put the underground mine on care and maintenance has started and will last up to nine months.

The mine, which had 595 employees and 200 contractors, has not turned a profit since it began production in 2008. Despite efficiency gains in recent years, Snap Lake was not expected to become profitable for three years due to declining prices, said spokesman Tom Ormsby.

Technically challenging to mine, Snap Lake also had groundwater problems that added to high costs. Planned to operate until 2028, it produced 1.2 million carats last year.

De Beers is terminating 434 employees and will employ 120 for the suspension work. Ongoing care and maintenance operations will require about 70 staff, it said.

Another 41 employees have been transferred to Gahcho Kue mine, now being built in the Northwest Territories (NWT) with Mountain Province Diamonds (Toronto: MPV.TO - news) , a 49-percent project partner. Sixty more could be transferred in 2016.

Gahcho Kue is due to start production in late 2016 and operate for 11 years.

Mountain Province Chief Executive Patrick Evans said the suspension will further trim De Beers' output, already cut to 29 million carats from 32 million carats this year.

"Supply restraint on the part of the major producers is very prudent and it's certainly going to help relieve the pressure that exists in the mid-stream and balance the supply-demand equation," he said.

Slower demand growth in China for diamond jewelry along with a glut of supply held by stone cutters and polishers have helped push the price of rough stones down by 18 percent this year.

"It (Other OTC: ITGL - news) 's going to be a shock to our economy," said Tom Hoefer, executive director of the NWT and Nunavut Chamber of Mines.

Diamonds directly contributed 18 percent to the NWT's gross domestic product last year, but some put the figure closer to 40 percent when related spending for such things as construction is included, Hoefer said.

Rio Tinto (LSE: RIO.L - news) sees production at its majority-owned Diavik mine ending in 2023. Dominion Diamond, which holds 40 percent of Diavik and 89 percent of Ekati mine, could extend Ekati operations to 2031. (Reporting by Susan Taylor; Editing by G Crosse and James Dalgleish)