Bolivia's mining industry is in crisis after the death of a protester and government moves to salvage the situation by considering seizure of a Canadian silver mine at the center of controversy.

Officials insist the farmer who died during the protests had been killed in a dynamite accident and had not been shot, as reported in the news media. Government Minister Carlos Romero went to some lengths to deny any protests had taken place at all or that protesters and police had clashed.

Amid increasingly divergent accounts from the news media and government officials of what actually is happening on ground, Canada's South American Silver Mining Corp. says it is concerned over reports the government may seize its asset.

The company says it has invested more than $50 million in the Malku Khota project, near the southern city of Potosi, which aims to extract silver and indium, used in the production of flat screens. South American Silver says the mine contains about 140 million ounces of silver.

The mine is said to contain vast reserves of silver and indium. Bolivia is also rich in many other minerals and has been in talks with foreign investors, including Iran, over ambitious plans to exploit its resources for international markets.

Bolivian President Evo Morales said his government will consider nationalizing the mine and still sees state takeover as an option.

Last month Morales took control of global commodities giant Glencore's tin and zinc mining assets in the country.

"Nationalization is our obligation," he said. "I already raised the issue of nationalizing (the Malku Khota project) last year, and I told (local inhabitants) to reach an agreement, because when they want we're going to nationalize," Morales said.

None of the government statements have outlined how the continued exploration and development of the mines will be conducted after nationalization.

Despite government denials, indication of continuing trouble at the mine came after three of five Bolivian engineers working for the Canadian company emerged free before news media, after reports the group was taken hostage by a Quechua Indian campaign group that opposes the open-pit mining project.

The community leaders say the mining development will devastate their way of life, cause hazardous damage to their water resources and eventually force them out of the area.

The only reported fatality in the protests so far was a Quechua Indian who was not named. Six other people were injured in clashes with police.

So far the Quechua Indians have lived in relative autonomy in Bolivia's remote southern highlands, which may explain the mystery of the current whereabouts of the two other engineers known to have been seized.

Community leaders said the hostage-taking appeared to be in response to the death of the Quechua man. Local reports said the man died from a gunshot wound. Bolivian officials said the man had dynamite strapped to his waist, suggesting he was a mining worker, and the explosive had gone off.

As the prospect of a mineral bonanza looms, the war of words between Quechua community leaders, business interests and the government has gained intensity. Officials have sought to discredit the protesters' environmentalist credentials and asserted the indigenous communities only want to wrest control of the mine and are not worried about the environment.

In contrast, Bolivian environmentalist groups say the open-pit exploitation of the mine will cause irreversible damage to the area.

Bolivian Mining Minister Mario Virreira said the local communities weren't worried about environmental contamination but rather sought control of the mineral deposits.