El ESTOR, Guatemala – Protests are threatening a $1 billion nickel project in Guatemala and clashes over land rights have killed a man, putting one of Central America’s biggest mineral investments in limbo.

The Fenix project in the town of El Estor, which looms over the banks of Guatemala’s biggest lake, has world-class nickel reserves and Canada’s HudBay Minerals aims to develop the pit, which has long lain dormant after its was first mined.

HudBay says the 7,700-hectare (19,000 acre) area has 41.4 million tonnes of mineral reserves and the potential to produce 50 million pounds of nickel per year over 30 years.

But hundreds of local people claim that large expanses of company land near Lake Izabal once belonged to their ancestors and have occupied the property for the past four years, farming corn and building thatch houses.

A teacher was killed in September when security guards from HudBay’s Guatemala unit CGN clashed with local residents after talks to arrange their relocation broke down.

“The (security guards) started to fire with their shotguns towards the people,” said Jose Ich, son of dead teacher Adolfo Ich. Eight other men were shot and five company security guards were wounded with machetes, police said.

The violence has raised tensions around the project, which was frozen last November as nickel prices plummeted during the global financial crisis.

HudBay said last month prices were improving and a decision to restart work could be made by the end of the year.

“A majority of local families have complied with the resettlement agreement, but a few continue to illegally occupy CGN property at this location,” HudBay said in a statement.

But one of the occupied plots is essential to the deposit and, if the settlers stay, it could put the mine in jeopardy.

“We can’t make a $1 billion decision unless we are confident that the rule of law is respected in that area,” John Bracale, president of CGN, told Reuters.

CALLING IN POLICE, SOLDIERS

Guatemala’s attorney general’s office said Ich died of a bullet wound. CGN disputes that, claiming members of his own community attacked him with a machete. The company said it was cooperating with the ongoing investigation and that it has not forced any evictions.

HudBay said it asked the Guatemalan government to send police and soldiers to the region to help maintain security, although the mining minister was not aware of the request.

The Guatemalan government strongly supports the Fenix project and hopes it will create hundreds of jobs.

Canada’s Goldcorp runs the only other major mine in Guatemala, a massive gold deposit that also has come up against some local opposition. Efforts to develop large-scale mining projects in other Central American countries, such as Honduras and Panama, are still in the early stages.

Guatemala’s Fenix deposit was first worked in 1977 and had a fraught relationship with locals during the country’s 1960-1996 civil war. A 1998 United Nations-backed truth commission connected people employed by a subsidiary of the previous mine owner to killings of activists against the mine.

In 1980, high fuel costs and collapsing nickel prices mothballed the reopening of the Fenix project.

But soaring demand for nickel from China and higher prices due to low international stocks convinced the small miner Skye Resources to restart it. HudBay acquired Skye in August 2008 and says it is still committed to developing the mine. (Additional reporting by Mica Rosenberg in Mexico City; Editing by Walter Bagley)