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SOMBA K'E/YELLOWKNIFE - The start of underground production at the Rio Tinto Diavik diamond mine has been delayed again due to continued reduced demand for rough diamonds, said Doug Ashbury, acting spokesperson for the mine.

Underground production at the Rio Tinto's Diavik diamond mine won't start until early next year, Rio Tinto recently announced. - photo courtesy of Rio Tinto

After previously delaying the start of underground production to the third quarter of this year, Rio Tinto has pushed it back once more to early 2010 - likely after January.

Rio Tinto has announced two planned shutdowns for Diavik over the next year: one between July 14 and Aug. 24, and another from Dec. 1 to Jan. 11, 2010.

The majority of underground construction is still expected to be complete for the third quarter of this year, but the underground mine will be put on care and maintenance until production begins, said Ashbury.

"Market conditions are such that we've chosen to further defer it," he said, referring to weakened demand for rough diamonds.

According to the original development plan, the mine was originally slated to go underground in early 2009.

The deferral makes good business sense, according to Mike Vaydik, general manager of the NWT & Nunavut Chamber of Mines.

"On a global basis, there's no point in expanding your production if nobody's buying your product. It's just a straight case of supply and demand," said Vaydik. "The delay of that extension of capital expenditures allows them to save some money at this time, prevent high outflows of capital and also move that activity into a place where hopefully prices are higher for your product."

But it may take a while for a luxury commodity like diamonds to recover from the global financial crisis, he said.

At the recent Nunavut Mining Symposium, where Vaydik was in attendance, Patricia Mohr, an economic and commodity market specialist with Scotiabank Group, said the beginnings of the commodities resurgence should be felt by the end of this year.

As for diamonds, "They're a luxury product and probably they're going to be one of the last things to recover," said Vaydik.

As of March, Diavik employed an operational staff of 830 people. In 2012, when the mine ceases open-pit production and becomes a fully underground mine, the operations staff will decline to 600.

Ashbury said Rio Tinto is confident a large portion of staff declines will be absorbed through "natural attrition."

"There's normal turnover," he said, although he was unable to provide Diavik's annual turnover rate for competitive reasons. "People retire. People move on to other jobs. In the North, many people come and go."

Additionally, some employees will be expected to take on additional duties or move to other parts of the mine, added Ashbury.

"For example, an individual who works in our process plant, his future role might be in the paste backfill plant. So he might get accelerated into that training in that plant so that he can work there. And while he's doing that, he may continue to work in the process plant."

The overall plan is to minimize the amount of layoffs required by the shedding of positions.

"In the end, are layoffs possible? Certainly. But that would be the last resort," said Ashbury.

Vaydik said Diavik's plan of attrition sounds "doable," given the transitory nature of life in the North.

"The mining workforce worldwide and certainly within Canada has always been pretty mobile," he said.