(Recasts, adds analyst comment, context, stock price)
By Wilda Asmarini and Fergus Jensen
JAKARTA, Dec 5 (Reuters) - Indonesia said on Tuesday it plans to acquire Rio Tinto's stake in the Grasberg copper mine operated by Freeport-McMoRan Inc, potentially solving a drawn-out problem for all three parties.
Under a joint venture formed in 1996, global miner Rio has a 40 percent interest in Freeport's Grasberg contract, entitling it to 40 percent of production above specific levels until 2021 and 40 percent of all production after 2022.
To meet new Indonesian ownership rules, Phoenix, Arizona-based Freeport agreed in August to divest 51 percent of its Indonesia unit to the government.
Analysts have been concerned that Freeport might get a low price for the business, which owns an over 90 percent stake in Grasberg, the world's second-biggest copper mine.
Energy and Mineral Resources Minister Ignasius Jonan said on Tuesday that Indonesia plans to buy Rio's interest in the mine by 2018.
Indonesia's proposal could see the sale of Rio's interest in Grasberg make up the lion's share of the government purchase, provided all parties can agree the structure and price, Jonan said. That could limit Freeport's sale to a 9.36 percent stake.
Such a deal could be "a win-win-win for Freeport, Rio and Indonesia as value leakage for Freeport would be less than expected, Rio would be able to exit a business that is non-core and high risk, and Indonesia would own a majority stake in Grasberg," Jefferies analyst Christopher LaFemina said.
"This would be an elegant solution to a complex problem, and a positive for Freeport," he said in a note to clients.
Freeport's shares came off earlier lows to end down 1.3 percent, down less than other copper miners as copper had its biggest drop in two years. Rio's shares were down 2 percent.
"According to the state-owned enterprise ministry, they are willing in principle," Jonan said, referring to Freeport and Rio.
A Melbourne-based spokesman for Rio declined to comment. Freeport Indonesia and the head office in Phoenix also declined to comment. Budi Gunadi Sadikin, chief executive of PT Inalum, Indonesia's state-owned mining holding company tipped to acquire the stakes, declined to comment.
Jonan said the drafting of an agreement had begun and the state-owned enterprise ministry and other government bodies aim to complete the acquisition in 2018, along with new fiscal terms in a special mining permit to replace Freeport's Grasberg contract.
He said the government "will maintain the valuation that we believe is correct," referring to a price of between $6 billion and $7 billion for Freeport's Indonesian unit.
A review of two decades of annual reports shows Rio's capital expenditures on Grasberg reached nearly $2 billion, while its net profit adds up to just $1.7 billion.
Rio has previously said it was holding talks with Indonesia on a potential exit from the venture.
Outside Indonesia, Rio has been expanding its exposure to copper mining amid a favorable outlook for the metal, including spending around $1 billion a year on its Oyu Tolgoi mine in Mongolia. (Reporting by Wilda Asmarini; Additional reporting by Cindy Silviana in Jakarta, Jim Regan in Sydney and Nicole Mordant in Vancouver; Writing by Fergus Jensen; Editing by Jane Merriman and Rosalba O'Brien)