The Northwest Territories government has been forced to resume its search for a buyer to take over its troubled diamond cutting and polishing plant.

Hopes that the Lev Leviev Group of Cos. would take over the operation collapsed earlier in February when the Israeli-based conglomerate was unable to strike a deal with the Diavik and Ekati mines to supply rough diamonds.

The challenge of establishing a cost-effective, competitive diamond cutting factory in Yellowknife, where labor costs are much higher than in Russia or Africa, became apparent last summer when plant owner Sirius Diamonds went bankrupt after the Northwest Territories government called its C$8 million in government-guaranteed loans.

The plant is still operating, but the government has lost C$3 million in the process.

A spokesman for Diavik said Leviev did not meet the mine's commercial criteria, which cover reputation, manufacturing and marketing ability, while Ekati said Leviev wanted more diamonds than it could supply.

Lev Leviev, principal of the company that carries his name, has gained a reputation as a diamond tycoon after being credited with reinventing the industry after breaking De Beer's near monopoly.