Gem Diamonds, which shut its Indonesia mine and part of its Australian operations as diamonds prices slumped, said in a trading update on Friday the market has rebounded, Reuters reported.

“The recovery in sentiment in the rough diamond market and resultant recovery in rough diamond prices through 2009 has been impressive, even though prices are still below the 2008 highs,” CE Clifford Elphick said.

Analyst Louise Collinge at Evolution Securities said the firm showed solid operational performance.

“We believe that Gem offers low risk exposure to the diamond market, and we retain our buy recommendation and our 301 pence target price,” she said in a note.

The average price per carat for rough at its flagship Letseng diamond mine in Lesotho doubled to $2070 in December from $1017 in the first quarter of last year, the report said.

At its Ellendale diamond mine in Australia, the company slashed output of lower quality gems and sold 312,450 carats last year, down 42%, but managed to boost the sales price per carat by 25% to $232, it said.

Last month, Gem Diamonds signed a long-term deal to supply fancy yellow diamonds from Ellendale to a subsidiary of high-end jeweler Tiffany & Co.

The company said it had $113 million in cash and no debt, so was well placed to take advantage of improved market conditions.

“Gem is also continuing to assess ways of further enhancing the performance of its producing assets and of assessing other opportunities in light of the improvement of the rough diamond market,” Elphick said.