Quechua Indian students practice the Thinku folk dance in the mountains near the village of Macha in Bolivia, May 3, 2009. THE CANADIAN PRESS/AP, Dado Galdieri

VANCOUVER - A Canadian company is protesting Bolivia's decision to revoke its licence to mine a rich silver deposit in the country and nationalize the project.

The licence was cancelled Tuesday following opposition from Quechua Indians who had seized workers employed by South American Silver Corp. (TSX:SAC) to press their case.

The Vancouver-based miner said early Wednesday it still had not received any formal notice from the Bolivian government about the cancellation.

"We strongly object to the government's stated course of actions and we will pursue all legal, constitutional and diplomatic options," said Greg Johnson, president and CEO of South American Silver.

The company described the Bolivian government's move as "surprising in light of the fact the company continues to receive the support from the 43 out of 46 indigenous communities in the project area."

"South American Silver has worked closely with these local indigenous communities over the past several years providing significant direct employment on project related jobs, as well as jointly developing programs with the communities to facilitate job training, education, agricultural enhancement and water management for long-term sustainable development," it said.

On Tuesday, President Evo Morales presided over the signing of an agreement with two Quechua communities that opposed the project in the southern highlands.

The communities released two mining engineers over the weekend after holding them for 10 days. Three other engineers were held for five days before fleeing.

That followed a clash between police and Indians in which one activist died under circumstances that remain unclear. News reports say several others were injured.

South American Silver estimates the deposit's reserves at 140 million ounces.

The company says since 2007 it has invested more than $16 million in the discovery and exploration of the site in the Andean region of Malku Khota.

"Ongoing exploration and any future mine development would result in up to 1,000 jobs for local workers in the community," South American Silver said.

"Mining is a key industry in Bolivia and this proposed action by the state sends a strongly negative message to potential investors and developers about the security of title for their investment in the developing country."

Meanwhile, South American Silver says it continues development work at it's the Escalones copper-gold project in Chile and remains financially sound with over $38 million in cash as of the end of the first quarter.

The company's shares have been hit hard by the dispute, having lost more than one-quarter of their value on Monday as plunged 29 cents to 73 cents on the Toronto Stock Exchange.

The issue was hammered again on Tuesday, dropping 23 cents, or almost 32 per cent, to close at 49 cents on the TSX.

— With files from The Associated Press.

News from © The Canadian Press, 2012