What natural disaster, commemorated on a stamp at the time, occured in Colombia during the debate over where to build the Panama Canal?

The natural disaster was the eruption of a volcano in
Nicaragua. A French company which had previously dug the Suez Canal had begun digging
what became the Panama Canal but ran into serious difficulties. The company had not done
the proper geological studies and attempted to dig the canal without locks. It lost over
$300 million and over 2,000 lives after having dug only one third the canal. The
company, in an attempt to cut its losses, offered to sell the entire project to the
United States for $109 million. President William McKinley appointed a commission to
study the project; the commission determined that a better route lay through Nicaragua.
The terrain there was more level than in Panama (which was then part of Colombia) and
there was a very large lake that could be connected on either end. Bottom line, the
Nicaragua route would be substantially cheaper than the Panama Route. Faced with losing
their entire investment the French company lowered its price to $40 million, and sent
letters to members of Congress supporting the sale. The letters contained a postage
stamp showing a volcano erupting in Panama. Rather than a commemoration, it was a
subliminal message to the members of Congress.

The efforts
of the French did not stop there. Colombia proved difficult in negotiations with
Washington, and the French Company sent a representative, one Bunau-Varilla to discuss
aiding a possible revolt by the Panamanians from Washington. The U.S. sent a warship to
Panama at which time the Panamanians revolted. Colombian troops could not cross the
jungle to put down the revolt, and American warships blocked the sea route. Shortly
thereafter, President Theodore Roosevelt received the first ambassador from Panama who
happened to be named Bunau-Varilla. The U.S. recognized Panamanian independence and
Panama granted the U.S. exclusive rights to dig the
canal.

Interestingly, when Roosevelt asked his Attorney
General about the constitutionality of his actions, the reply
was:

Mr.
President, if I were you, I would not have any taint of legality about
it.