Ghaghoo, the first underground diamond mine in Botswana, has been a difficult mine to build. A shaft was sunk through an 80m-thick layer of Kalahari desert sand in a remote location in the north of the country. The mining project started in October 2011 and has yet to reach commercial production of 150,000 carats a year.
Gem has spent about $85m on developing the first phase of the mine, which delivered 91,500 carats in 2015 and nearly 41,000 carats in 2016.
"The material fall in the prices of its diamonds from $210 per carat in early 2015 to $142 per carat at its most recent sale in December 2016 emphasises the weak state of the diamond market for this category of diamonds,"Gem said on Thursday, pointing out the mine was on the cusp of reaching commercial production and would cost $3m a year to maintain.
Gem would monitor market conditions to decide when to restart the mine profitably.
John Meyer at SP Angel called Gem's decision "pragmatic", while another analyst warned Gem could run into difficulties with a $25m Nedbank loan to the project.
The analyst, who did not want to be named, said Gem itself could cover the repayment of the loan.
Gem's attempts to extend operations beyond its Letseng mine in Lesotho have been unsuccessful - the Ellendale mine in Australia was sold for 15m in 2012 and the Cempaka alluvial mine in Indonesia was closed in 2008.
Exploration efforts in Angola and elsewhere in Africa came to naught.
The successful Letseng mine is known for large diamonds, which average more than 2,000 per carat.
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