Nearly 90 workers face redundancy, with the news only part of Kiwirail's Hillside Workshop in Dunedin has been sold.
KiwiRail has entered into a conditional agreement to sell the foundry to Bradken, which will continue to operate the site, including supplying parts to KiwiRail as required. The sale is expected to be completed early next year.
KiwiRail's freight business would now operate the heavy lift facility and the rest of the site will be progressively closed down over the next few months as work is either completed or transferred to the Hutt Workshops near Wellington.
Chief executive Jim Quinn said it was unfortunate the company could not finalise a purchaser for the whole business, but he was pleased there would still be some operations continuing at the site.
Many would be sad about its closure; however, change was necessary as KiwiRail continued to build a sustainable rail business for the challenges ahead, he said.
''This will be very difficult for our staff and although some will be transferred to Bradken or the KiwiRail Freight business, there will be redundancies.''
The Rail and Maritime Transport Union said the news of a partial sale only would be cold comfort to nearly 90 workers who faced redundancy.
''The fact the foundry will remain open under the new owner and is of some solace, and KiwiRail's decision to retain eight jobs to do heavy lift maintenance on the site makes sense, but the fact is that the closure of the manufacturing facility is a body blow,'' said RMTU Acting General Secretary Todd Valster.
Otago Chamber of Commerce chief executive John Christie said the chamber welcomed the announcement of the partial sale and saw the announcement as positive for Dunedin in the long term.
''It quickly became clear that the historic business would not emerge intact from the sale . . . this hasn't been a quick or easy process. However, the Chamber is pleased that a company with local connections, and a feel for the local environment, is involved and will be making a capital investment of this size into the city.
''We're also very hopeful that the business will continue to grow and make a positive contribution to the local economy, increasing jobs in the future.''