A diamond is shown at a polishing facility in Yellowknife. Improving demand for the precious stones has led to the cancellation of a production shutdown at Canada's Diavik mine. (CBC)

A planned shutdown of the Diavik diamond mine in the Northwest Territories has been cancelled because of improving demand for diamonds.

Earlier this year, the company that operates the Diavik mine announced that as a result of the economic slowdown, the site would be temporarily shut down in the summer and winter of 2009.

The summer shutdown was completed Aug. 24 and production has resumed, but the winter shutdown that was to begin on Dec. 1 is no longer necessary, Diavik Mines Inc. said Tuesday.

"After we had our successful summer shutdown, which was a six-week shutdown as well, senior management of Diavik reviewed the economic factors — the demand, the price for diamonds, etc. — and there has been a modest improvement in the world economy," Diavik spokesman Pat McCloskey said in Yellowknife late Tuesday.

While there was a widespread slowdown for luxury goods in early 2009, demand for diamonds from Asia and China has picked up.

Diamond prices are now roughly 50 per cent higher than they were as recently as six months ago, diamond miner Harry Winston Diamond Corp. said last week. The company has a 40 per cent interest in the Diavik site.

Impact on local economy

Roughly 600 workers have been affected by the slowdown. The broader impact on the local economy has been huge, said Patrick Doyle of the Yellowknife Chamber of Commerce.

"There's such a large payroll for this site, it affects everything from, of course, its own employees and staff members to their contractors and sub-contractors, even all the way to our car dealerships here in town," Doyle said.

The Diavik diamond mine is located in the Lac de Gras area, about 300 kilometres northeast of Yellowknife. One of three diamond mines in the N.W.T., it went into production in 2003.

Diavik, a division of Rio Tinto PLC, owns 60 per cent of the Diavik site, with the remainder held by Harry Winston.

'Precarious' economy

Despite the financial improvements, McCloskey said the markets are still fragile and he cannot predict the mine's longer-term production plans.

"There's good indications that the economy is turning around, but it is still at a precarious stage," he said.

"Even if you review government and industry pundits on the economy right now, everybody is very cautiously optomistic."

Diavik said in a release that future slowdowns remain an option should the situation deteriorate.

But Harry Winston chairman Robert Gannicott said: "We do not foresee a return to extreme conditions that would warrant a further shutdown."

Several months before Diavik announced its temporary shutdowns, De Beers Canada said it would close its Snap Lake mine, located 220 kilometres northeast of Yellowknife, for 10 weeks over the course of 2009.

More than 400 workers at Snap Lake were asked to take unpaid leave during those 10 weeks.

De Beers also cited the economic downturn and a decline in diamond production for the temporary closures, which came on top of layoffs it made last year.