The Northwest Territories' diamond industry took a hit Wednesday with news that a Yellowknife polishing plant is shutting down amid falling diamond production coming from two of the territories' three mines.

Owners of Laurelton Diamonds' cutting and polishing plant in the N.W.T. capital announced Wednesday that it will close for good on Feb. 19, putting about 40 employees out of work.

Tiffany and Co., which owns Laurelton Diamonds, blamed the Yellowknife closure on the high cost of doing business in Canada's North, as well as a reduction in the supply of rough diamonds.

"The high cost base of the operation and the lack of additional rough diamond supply opportunities have been the major factors in preventing the operation from remaining viable," Laurelton president Andrew Hart said in a release Wednesday.

The company said it will continue to source rough diamonds from N.W.T. mines, but it will have them polished at its other facilities.

4th closure on 'diamond row'

Laurelton Diamonds opened its Yellowknife polishing plant to great fanfare in October 2003, securing an agreement with the Diavik diamond mine to polish $50 million worth of diamonds a year.

The closure marks the fourth time in 10 years that a diamond polishing plant has closed down in Yellowknife's troubled "diamond row."

"It's surprising, because they did invest a lot in the North," Ron Basal, who operates two diamond cutting and polishing plants in the city, told CBC News on Wednesday.

"They did put up a beautiful factory. It just shows that the economy, including the diamond business, is very bad, and people have to make a lot of cuts and decisions."

Some workers who will lose their jobs at Laurelton's Yellowknife plant will be offered work in other areas of the company, according to the company's release.

Fewer diamonds from Ekati, Snap Lake

Meanwhile, production has slipped at BHP Billiton's Ekati diamond mine, located about 300 kilometres northeast of Yellowknife.

Diamond production at Ekati was down 30 per cent in the fourth quarter of 2008, compared with the same three-month period in 2007, according to production figures released Wednesday.

BHP Billton said the mine has been processing lower grades of ore lately, as it changes from an open-pit mine to an underground one. Ekati, Canada's first diamond mine, has been operating since 1998.

Rival diamond firm De Beers, which owns the Snap Lake mine, announced it will be offering customers half the normal amount of rough diamonds until April.

De Beers cited a drop in sales in the United States, the world's largest diamond market, for the reduced production.

Last month, De Beers said it would be closing the Snap Lake mine for 10 weeks over the next 12 months. The company also said it would be laying off 105 workers at the mine, located 220 kilometres northeast of Yellowknife.