NZAS, a joint venture between Rio (79.36%) and Sumitomo Chemical Company (20.64%), operates the Tiwai Point aluminium smelter on New Zealand's South Island.
The decision follows a strategic review which concluded the business was no longer viable given high energy costs and a "challenging" outlook for the aluminium industry.
Rio posted an underlying loss of NZ$46 million on the smelter in 2019.
Rio said energy costs were some of the highest in the industry and talks to secure a more competitive power contract had failed.
NZAS has given Meridian Energy notice to terminate the power contract, which will end in August 2021, when the wind-down of operations is expected to complete.
During the next 14 months, NZAS and Rio will work closely with partners as detailed planning is undertaken to wind down operations, and eventually close the smelter.
The smelter employs around 1000 people directly and creates a further 1600 indirect jobs in Southland.
"We recognise the decision to wind down operations at NZAS will have a significant impact on employees, the community and our customers," Rio Aluminium chief executive Alf Barrios said.
"It is not a decision we have made lightly and without significant careful consideration. It is very unfortunate we could not find a solution with our partners to secure a power price reduction aimed at making NZAS a financially viable business. We will therefore terminate the power contract and move to close the operation."
Rio first initiated the review of NZAS in October 2019. It is also reviewing its ISAL smelter in Iceland.
