South American Silver shares fall on Bolivia mine rules

TORONTO, July 11 (Reuters) - Shares of South American Silver Corp tumbled on Wednesday, a day after Bolivia's leftist president said he would revoke the company's mining concession for the Malku Khota project due to violent protests over the mining property.

Shares of the company fell 17.4 percent to 40.5 Canadian cents after the Toronto Stock Exchange opened.

Bolivian President Evo Morales said late on Tuesday that he had signed a deal with anti-mining protesters under which the government would take back all the concessions granted to South American Silver's local subsidiary.

The Vancouver-based miner said it has not yet received any formal notice from the government.

"We strongly object to the government's stated course of actions and we will pursue all legal, constitutional and diplomatic options," said Chief Executive Greg Johnson in a statement.

The company, which has invested some $16 million in the project since 2007, said it has the support of 43 out of 46 indigenous communities in the project area.

Violence flared at Malku Khota last week as authorities negotiated with peasant farmers on the release of five Bolivian employee hostages. One man was killed and at least a dozen were injured.

Malku Khota is a silver and indium project. The exploration-stage project was expected to produce some 13.2 million ounces of silver a year, according to a preliminary economic assessment.

It is the second time in recent weeks that protests have hit foreign-owned mining operations in Bolivia, where there has been an upswing in social unrest and anti-government protests.

Last month, clashes between rival miners broke out at a tin and zinc mine owned by commodities giant Glencore.

Mining has played a key role in Bolivia's economy since the colonial era. The Andean nation mainly produces tin and silver, but is also home to the world's largest undeveloped lithium and potassium resources. (Reporting by Julie Gordon; Editing by Peter Galloway)