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(Corrects ownership of Ljubija mine, paragraph 3)
By Daria Sito-Sucic and Gordana Katana
SARAJEVO, May 15 (Reuters) - ArcelorMittal, the world's largest steel producer, has warned Bosnia's authorities it is ready to take legal action to protect its ownership rights if a government-owned stake in the Ljubija iron ore mine is sold to a rival bidder, the company said on Monday.
ArcelorMittal owns a steel plant in the central Bosnian town of Zenica, where it processes iron ore from the mines it owns in Prijedor in the north of the country.
In the nearby Ljubija iron ore mine, the government of Bosnia's autonomous Serb Republic has a 64.9 percent stake, which has been put up for sale. Small investment funds own the remaining stake.
The steelmaker has made a bid to buy out a the government's stake in the Ljubija mine, but the government has decided to sell it to rival bidder, Israeli Investment Group (IIG), saying the Israeli group offered a higher price for the stake and promised more investment.
The regional parliament is expected to decide on the sale on Tuesday but it is not yet clear if the government will have majority support.
ArcelorMittal chairman and CEO, Lakshmi Mittal, has sent a letter to the Serb Republic government in which he "emphasised the very serious negative impacts for jobs and the economies of both Prijedor and Zenica" if the proposed sale of the Ljubija mine stake to IIG was confirmed, the company said.
"The letter also gave notice of our intention to protect our contractual rights by all means possible, if necessary through legal action in the appropriate international courts," the company said in a statement emailed to Reuters.
Serb Republic President Milorad Dodik, who supports the sale to the Israeli group, said that he had not yet received the letter and declined to comment. IIG was not immediately available to comment.
ArcelorMittal Prijedor employs 850 workers and has invested 117 million Bosnian marka ($65 million) in the mines over the past 12 years. Its steel plant Zenica, in which it had invested over 300 million marka, employs about 2,400 workers.
ArcelorMittal Zenica's Chief Executive, Biju Nair, has said that if the Ljubija mine was sold to a rival bidder, the Zenica plant could switch to a different production system, which would not be suitable for the iron ore from Ljubija and this would lead to job losses at both Prijedor and Zenica.
"A new owner could threaten the supply of iron ore from Prijedor at commercially acceptable prices. If so, we can change to production without iron ore, using the Electric Arc Furnace," Nair said.
Bosnian Serb opposition parties, as well as ArcelorMittal Prijedor trade unions, are against the sale to the IIG.
On Monday, police in Prijedor banned peaceful protests by ArcelorMittal workers against the sale to the IIG. The workers, who are worried about job losses, had already protested last week in Banja Luka when the parliament was originally due to vote on the sale.
The regional government wants to go ahead with sale because it faces a big budget deficit after the International Monetary Fund halted disbursement of cash under its aid programme for Bosnia because of reform delays.
IIG, which was presented as an "Israeli-Russian-Kazak-African investment group" by its director Evgenij Zotov, has offered 92 million Bosnian marka for the stake and pledged a 65 million marka investment over the next three years.
ArcelorMittal has offered 63.6 million marka and investment of 63 million marka over the next 10 years.
ArcelorMittal's local subsidiary ArcelorMittal Prijedor has exclusive exploitation rights in the mines under an earlier agreement with the government.
1$ = 1.798 Bosnian marka Editing by Jane Merriman