Diamond miners have dropped their plan to shut down the Diavik mine in Canada for six weeks through December and into the New Year.

Diavik mine in Canada; photo courtesy of the Diavik Diamond Mine

The announcement was made by Rio Tinto and Harry Winston, the two companies that jointly own the diamond mine.

Diavik (pictured right) is an open pit mine in Canada’s Northwest Territories, around 300 km northeast of Yellowknife and 220 km south of the Arctic Circle.

The mine is located in a lake known as Lac de Gras, and it featured in the TV show Ice Road Truckers as a destination for hundreds of heavy loads brought in by trucks using the temporary winter ice road.

The fact that the planned Diavik winter shutdown will not go ahead reflects the recovery that has taken place in the diamond market over the last few weeks and months.

Diamond mining companies have seen renewed demand for rough diamonds following a period through the last quarter of 2008 and the first quarter of 2009 when demand (and prices) practically fell off a cliff.

Diamond miners responded to the fall in demand by shutting down operations: we reported in May that De Beers’ output dropped by a staggering 90% for the first three months of 2009 compared to the same period in 2008, and the Diavik mine has only recently started operating again after a six week shutdown over the summer.

Rio Tinto had previously announced that production at their Argyle diamond mine in Australia slumped by more than 80% during the second quarter of this year.

In short, diamond mining companies spent most of the first half of 2009 deciding that they were better off leaving diamonds in the ground.

That sentiment now appears to be turning around as demand for diamonds picks up. Prices for rough diamonds have been climbing: Harry Winston reported last week that their own rough diamond prices at the end of the second quarter had risen 50% from the low point in the first quarter.

Miners will hope that the recovery is sustained in order that the diamonds that they are now deciding to dig up can be sold into the market at profitable prices in 2010.

So, green shoots for the diamond business in some pretty unlikely places – the frozen tundra of Canada and the parched interior of northern Australia.

But it’s a fragile recovery: these operational decisions about diamond mining are being taken now on the basis of rough diamond pricing and demand in today’s market and projections about how that pricing and demand will carry forward into 2010.

Ultimately the diamond industry needs to see recovery taking place where it matters most: i.e. with consumers spending their precious money on diamond jewellery in the coming retail season.

UPDATE September 30th – De Beers have followed suit by announcing that they will not be shutting down their Snap Lake diamond mine in the Canada over the winter holiday period. The plan had been to shut the mine down for a four week period in December.