De Beers Canada has laid off 128 Snap Lake diamond mine workers and terminated outside contracts that affect 90 other workers as it cuts production to meet the forecast decline in rough-diamond sales.

Some of the positions filled by contractors are being absorbed by De Beers workers in the restructured organization, the company said.

The mine employed about 550 permanent workers, with about 260 on site at any time.

"This is a very difficult but necessary business decision as we respond to the changing client demand for diamonds in the short term," De Beers Canada CEO Jim Gowans said.

"Our mines have accomplished a tremendous amount in their first year of operation, and we must continue to overcome the economic challenges of today to position ourselves for a strong and long-term future in Canada."

Snap Lake, 220 kilometres northeast of Yellowknife, and the Victor Mine in Northern Ontario both started production last summer.

Snap Lake, an underground mine, cost $950 million, and the Victor open-pit mine about $1 billion.

Late last year the company announced production cuts and temporary shutdowns at both mines for 2009, and reduced or deferred capital expenditures to help it ride out the current economic climate.

But those decisions "are no longer enough to keep ahead of the current condition of the market," said Chantal Lavoie, senior operations vice-president based in Yellowknife.