* Mine becomes cause for anti-austerity movement
* Government says investment will proceed at all costs
* Locals fear for environment, livelihood in tourist hotspot
By Deepa Babington and Lefteris Papadimas
OURANOUPOLI, Greece, Jan 13 (Reuters) - A Canadian quest to mine for gold in the lush forests of northern Greece is testing the government's resolve to prove Europe's most ravaged economy is open again for business.
The Skouries mine on Halkidiki peninsula - a landscape of pristine beaches and rolling hills dotted with olive groves - is among the biggest investments in Greece since it sank into a debt crisis four years ago.
But it has set Greece's desperate need for finance to rebuild the economy against the interests of its vital tourism industry, and aroused anger on the peninsula - site of the famed Mount Athos monasteries - over the environmental cost.
Vancouver-based Eldorado Gold Corp took over the project in 2012, promising to invest $1 billion over the next five years as part of a plan to mine eventually source up to 30 percent of its global gold production in Greece. Yet preliminary work on the mine, which is supposed to open in 2016, has set off months of politicking and protests.
The row has overshadowed what was supposed to be the flagship project of the government's foreign investment drive. It also highlights Greeks' ambivalence about attempts by Prime Minister Antonis Samaras to kindle industrial growth in an economy that has traditionally relied on tourism and services.
Last year, intruders barged into the mine with hunting rifles, set equipment on fire and doused security guards with fuel, threatening to burn them alive.
Local protesters, who say they reject violence and have the backing of some opposition politicians in parliament, fear the mine will destroy Halkidiki's tourist riches. Samaras, however, has warned that foreign investments would be protected at "any cost".
"Rightly or wrongly, God endowed the region with ores, and we must first decide whether we (Greeks) want to exploit it or not," said Petros Stratoudakis, CEO of the company developing the mine, Hellas Gold.
Eldorado owns 95 percent of Hellas Gold, which also has other mining projects in Halkidiki, with the rest held by Ellaktor, Greece's biggest construction company.
Halkidiki has a rich history. The Eastern Orthodox monasteries nestled in the hills of Mount Athos are an artistic treasure and UNESCO World Heritage site.
But northern Greece has also long been fertile territory for explorers. Macedonian King Alexander the Great mined for gold in the hilly forests to finance his conquests into Asia 2,300 years ago, according to local authorities.
Eldorado executives say gold mining could become a significant money-spinner for modern-day Greece, bringing in foreign currency and helping to diversify an economy that is struggling with 27 percent unemployment.
"The conditions that exist particularly in northeast Greece are unique in my mind," Eldorado CEO Paul Wright said in an interview. "I've been in the industry for 35 years and I've yet to see a situation where there is such a mineral endowment that is being recognised - in many cases quantified - but remains unutilised."
Under its five-year plan, Eldorado gives the authorities a minimum 3 million euros ($4 million) a year, laid down in a new royalty scheme. Local people make up 90 percent of 1,600 workers the company and its contractors employ now. At its peak, Eldorado says they will employ over 2,000 workers at their mines in Halkidiki.
The Canadian company has the strong backing of the conservative-led government of Samaras, who has tried to drum up foreign investment to inject life into the economy since coming to power in June 2012.
"Growth means investments. Those who drive investments away do not want growth. When they occupy factories they do not want growth," Samaras said last month. "When they try to cancel legitimate investments and keep fighting against them although they have been fully approved - as they did at Skouries in Halkidiki - they do not want investments."
In Halkidiki's seaside village of Ouranoupoli where aquamarine waters hug a strip of hotels, fish tavernas and little shops selling wine, olive oil and religious icons, the air hangs thick with anger against the mine.
"No to gold mining" is scribbled on the walls by the port, emblazoned on t-shirts worn by waitresses at a beach taverna and scrawled on the wooden pier where children jump into the crystal clear waters.
The villagers - who make a living catering to mainly Balkan and Russian tourists who flock to Halkidiki's sandy beaches - are afraid the mine will destroy their livelihood by scaring away visitors and turn the area into an industrial zone.
"Who will come then here to swim and eat our fish?," asked Chryssa Likaki, a 52-year-old real estate agent as she sat one evening with other residents at a waterfront cafe, a short walk from where tourists take boat rides to see Mount Athos.
She and other residents argue such a "pharaonic project" will drain the region's water basin and pollute the water supply, send out 3,000 tonnes of dust per hour into the air and destroy the local forest. They also say cyanide used in the production process poses a health risk to the local community.
Company officials counter that there will be no dust cloud, Skouries needs only 0.09 percent of Halkidiki's forest, the projects have all the necessary environmental permits, the region will not be drained dry and that cyanide will be used in a nearby mining plant but not in the quantities villagers fear.
But in a country where suspicion of authority runs deep, the villagers say they see no reason to believe the company's promises or that officials will hold them to it. "Come on, we live in Greece," laughs Likaki. "We don't trust the state."
In Ierissos, a village where banners proclaim "You can't buy water with all the gold in the world" and "Extracting gold with blood", tensions have run so high that an abandoned police station was set on fire and burned down in April last year.
Michalis Theodorakopoulos, the general manager of the company's Kassandra Mines that includes the Skouries project, accuses anti-mining groups of sowing fear among villagers, a situation exacerbated by local politics and jealousy that pits one village against the other.
"They have invested in fear, they have invested in lies, in panic," he said. "The situation in the area is a microcosm reflecting the reality in Greece with petty political interests prevailing."
The mine has become a cause celebre among leftists and anti-austerity activists in Greece, prompting marches and debates in Athens, an eight-hour drive to the south.
Fans of the PAOK soccer team in the nearby city of Thessaloniki held up anti-mining banners during games when word spread that Hellas Gold wanted to become a sponsor.
The main opposition party, Syriza, is among those that oppose the project. The leftist party, which is against Greece's international bailout and austerity policies, says the project will destroy more jobs than it creates and the deal allowing Eldorado to take over the mine was a "scandal" that fails to benefit the Greek state.
"It's like the Wild West up there. The company's name shows what kind of conditions underpin this investment," Dimitris Papadimoulis, a senior Syriza lawmaker, told Reuters. "Police, local authorities and state power are used to protect private interests to the detriment of public interest."
Samaras in turn has promised to end "this impunity of some people who pretend they want (economic) growth but only block every growth project".
"I travel across Europe and I hear other prime ministers discussing efforts to attract future investments in their region but we are doing everything to push investments away," he said. "It's embarrassing."
Some of that embarrassment extends to the rural heartland in Stratoni that houses Eldorado's local office. There, 38-year-old mine worker Manolis Manthos says he is content to have a job year-round that pays 1,150 euros a month net and does not understand the drama around the project.
"One thing is certain - the situation is out of control," he said.