Bolivia expropriated a silver and indium mine operated by a local unit of Canadian firm South American Silver -- a move criticized by Ottawa and likely to put off foreign investors.
Mining Minister Mario Virreira on Thursday said a decree had been issued authorizing the state to "control from now on activities related to exploration and planning" at the mine located in southwestern Bolivia.
Bolivian officials denied the government had ever signed an agreement with South American Silver to operate the mine in the community of Malku Khota, located about 340 kilometers (210 miles) south of the capital La Paz.
"It is clear that Bolivia, as a state, has no direct contact with South American Silver," Virreira said.
The government has contracted an independent company to evaluate the investments made in the mine over the next 120 days. Results of that study will be used to determine the amount of compensation paid to South American Silver.
Canada said it was "very disappointed" by the move.
"This action sends a negative signal to Canadian and all other foreign investors," trade ministry spokesman Rudy Husny told AFP.
"Canadian officials remain in contact with the company and the Bolivian government and call for a resolution that respects the investment made by the company," Husny added.
Canada "strongly believes that a stable and predictable legal, fiscal and regulatory framework is a vital prerequisite for increased private sector involvement, investment and confidence in the extractive sector," he said.
Since leftist President Evo Morales came to power in 2006, Bolivia has moved to nationalize firms deemed strategic -- a policy similar to one followed by his key ally, Venezuelan leader Hugo Chavez.
In June, Morales raised the possibility of making all natural resource-related industries property of the state.
That attitude has put off investors. Last month, India's Jindal Steel and Power scrapped plans to invest $2.1 billion in a Bolivian mining project and blamed the nation's "non-friendly business attitude" for the deal's collapse.
The decision to expropriate the Malku Khota mine follows weeks of recent protests at the site by indigenous leaders calling on La Paz to take over the facility.
In June, farmers and mine workers, some armed with explosives, forcibly occupied the site.
One person died and several were injured during a prolonged standoff last month that also saw protesters take a total of seven hostages, including five Bolivians employed by South American Silver. Four of the captives escaped and the three others were later released.
South American Silver in July expressed "extreme disappointment" at the government's possible decision to expropriate the mining project.
The Malku Khota project boasts one of the world's largest untapped resources of silver and indium, a rare metal used in flat-screen LCD televisions.
South American Silver had planned to invest $50 million until 2014 into the mine, which also explores gallium deposits, over the past five years. A subsidiary of the Canadian firm has managed the mine since 2007.
Gallium is used in microelectronics.