The 78-year-old former guerrilla leader, who sees the Valentines iron ore mine as a crowning legacy of his presidency, has angered traditional constituencies of supporters with moves critics say are neither fair nor legal. Critics say the mine will devastate Uruguay's ecology.
Mujica's government faces charges it has circumvented rules to push ahead with what is rated to be the largest international investment project in the country's history. Anglo-Swiss mining group Zamin Ferrous has come in for sharp criticism as controversy rages over the plan.
The Valentines project, also called Minera Aratiri, is an ambitious three-phase development that aims to develop Uruguay's iron ore deposits, build pipelines for shipping iron ore concentrate through pristine unspoiled reserves of natural beauty and a deep water port on Uruguay's Atlantic coast.
The project faced opposition when first proposed in 2008, with the grant of permits to Zamin Ferrous subsidiary Minera Aratiri.
That opposition intensified after Zamin Ferrous and Mujica's administration agreed to expand cooperation to include a deep-water port. Mujica argues the port will transform Uruguay, which depends on the goodwill of Argentina and Brazil for much of its global exports. Brazil has pledged support to Uruguay's plans to have its own deep-water port and bypass Argentina.
Critics say the entire complex, about 150 miles from the capital Montevideo and Uruguayan coast, strikes at the heart of Uruguay's rich legacy of natural resources. The iron ore project's time span of 12-20 years is nothing when compared with the long-term damage it will cause to Uruguay's environment, critics say.
Mujica called the mining program "the most important foreign policy decision for this government" that would enhance Uruguay's strategic importance. Critics cite government difficulties in securing some of the initial investment from Zamin Ferrous.
This week pressure mounted on Mujica in parliamentary debates that called for greater transparency in the mining deal.
Opposition lawmakers said government plans to finalize contracts and then follow up with an environmental impact study violated Uruguayan law and urged the government to reverse the order of the planned actions.
Lawmaker Gerardo Amarilla, of the parliamentary environment committee, said he had learned with alarm of government plans to modify biosphere protected areas to allow for a more direct route for the mineral slurry pipeline connecting the planned mining complex to the coast.
"The project could have a significant and irreversible environment impact in an area of high biodiversity," Amarilla said.
Two senators, Sergio Abreu and Ope Pasquet, have supported calls for greater transparency in the arrangements being reached with Zamin Ferrous.
Zanin Ferrous says the mine may hold as much as 5 billion tons of magnetite iron ore.