Nearby in San Ignacio municipality, Minerales Entre Mares, a unit of Glamis Gold, has run the San Martin gold and silver mine since 1999.

Velasquez and others like him contend mining has devastated the forests and dried up water sources in their poor valley. Faced with the possibility mining could start in their areas, they are locked into conflict with their neighbors in San Ignacio, who largely support the existing project and the money it has brought.

"They are totally destroying our forest. I am ready to fight against that company. We want it to leave. We will give our lives for that if we have to," said Velasquez, pointing to a huge gash in the hillside under a cloud of dust where mining was under way.

"We no longer have any water here. The rivers and ravines are dry and the wells don't give us water any more either," he said.

The San Martin mine, an oasis of wealth amid the poverty that afflicts the Siria Valley, has become a point of battle between the neighboring municipalities of San Ignacio, El Porvenir and Cedros.

Officials in San Ignacio, with a population of 8,100, say nearby communities resent the newfound wealth it has brought. Opponents say the environment, not money, is at stake.

'GIFT FROM HEAVEN'

The mine fell "like a gift from heaven", San Ignacio Deputy Mayor Victor Lopez told Reuters. "Most of the people from San Ignacio, almost 100 percent, except for a few who say they are ecologists, are in favor of the San Martin mine and we want it to continue operating," he added.

Before the company came to San Ignacio, the municipality received a monthly income equivalent to $1,072 from the government "and now the mine alone gives us (in payment of rights) up to $41,700 every month," Lopez said.

Under a 10-year concession granted by the Honduran government, Entre Mares has permission to extend its mining operations to El Porvenir and Cedros, which were mined on a small scale by Spanish conquerors who dreamed of enormous wealth in the 16th and 17th centuries.

Villagers from El Porvenir, which has 15,500 inhabitants, and Cedros, with a population of 19,500, have held protests demanding the government suspend the company's concession to mine the area.

"We don't want money. We don't want the mine here. We want it to go away," El Porvenir Mayor Ladislao Barahona said.

Opponents of the mine say the cutting of vast swathes of trees by Entre Mares is now threatening the meager water supplies left in the valley.

Barahona accused the company of draining the region's rivers, brooks and other water sources to supply the 400,000 gallons (1.5 million litres) its operations need daily.

Villagers also complain because Entre Mares uses cyanide to separate the gold from the earth, which the company claims is the best method for economic and ecological reasons.

"We won't allow the mining company to advance even one centimeter into our municipality, said Barahona, calling himself Entre Mares' "biggest enemy".

"We don't want our forests to be destroyed, nor our lands and waters to be contaminated and our population killed by cyanide," he added.

DEFORESTATION, DROUGHTS

But officials from San Ignacio and the government's Department of Mining Promotion argue deforestation and recurrent droughts are to blame for the poverty of the region's aquiferous layers.

Entre Mares manager Eduardo Villacorta said the mine was respecting safety and environmental standards and planned to replant trees, in accordance with the concession terms.

Known reserves in the 988-acre (400-hectare) mining area are 1.2 million troy ounces. Gold accounts for the bulk - 1.0 million troy ounces - and the rest is silver.

San Ignacio Deputy Mayor Lopez said the residents and authorities of neighboring El Porvenir and Cedros "oppose the mine because we're the only ones receiving the benefits."

"We are receiving sums of money we never imagined. We are building drinking water projects, parks, communal centers and other works in the municipality. The least we can do is enjoy those benefits," he said.

Entre Mares is one of four mining companies operating in Honduras. In 2001 it earned $27 million from Honduran gold and silver exports, equivalent to just over a quarter of total Honduran mining exports.

From January to September this year, Entre Mares produced and exported 101,442 troy ounces of gold and 17,356 of silver, according to the Department of Mining Promotion.

"Honduras is the country with the most mining potential in Central America," said Jose Sierra, head of the Mining Promotion Department.

"We have this rich potential and we should take advantage of it with the help of foreign companies as we don't have funds to explore and mine on our own," he said.