Tahera Diamond Corp. says it ended operations at the Jericho mine in Nunavut on Saturday.
The company said Monday it terminated the employees, but the Department of Indian and Northern Affairs intends to retain some former workers to maintain the mine site.
The federal department will be responsible for environmental protection and reclamation of the now-defunct mine site.
Documents filed with the Ontario Superior Court said Tahera's transfer of the mine to Ottawa will cost the federal government about $1 million and leave three to four people working there.
The department holds about $8 million in letters of credit from Tahera, to be used for reclamation of the site. However, department officials said those letters of credit would not be used to cover the costs of ongoing care and maintenance.
Tahera has been struggling for more than a year and sought bankruptcy protection last January.
It said the mine closing, predicted in previous statements, was necessary because the company lacked money to maintain the site and had not been able to find a buyer.
Nunavut's first diamond mine opened in 2006 at a cost of $116 million, but the company wrote the mine value down by $73 million in late 2007 because of currency moves, operational issues and the higher cost of oil.
In the third quarter of 2007, the company said it spent $17.9 million to produce diamonds worth $8.6 million.
Its court-approved bankruptcy protection has been extended to Jan. 23, while it tries to sell its remaining assets in consultation with Caz Petroleum Inc., its leading secured creditor.
Shares of Tahera peaked at $4 in early 2006 but recently were half a cent each on the TSX.