Solid Energy is to mothball the $25 million briquette plant in Mataura with the loss of up to three jobs.
The plant, which converts coal to blocks of fire fuel, was part of a wider, controversial plan by the state-owned energy company to tap into the significant lignite resources beneath Southland.
World coal prices began plummeting two years ago and mothballing the plant is part of a wider move to consolidate by the struggling company.
Solid Energy says it will now consult with its workers, with a final decision about the future of the plant and the jobs to be made by the end of next week.
If the closure goes ahead, one worker will be retained to look after the plant.
The joint operator, GTL Energy, has an option to take it over entirely.