The drought-afflicted town of Cobar in western New South Wales is reeling after learning 130 jobs would be cut from its local mine.

Key points: The company behind the mine said the operation may close by the end of the year

The company behind the mine said the operation may close by the end of the year It is the second time in three years major job losses have been felt at the mine

It is the second time in three years major job losses have been felt at the mine Local MP Roy Bulter said people would have to leave Cobar to find work

CBH Resources said it would reduce 161 full-time employees, plus 40 contractors, to just 71 people.

The company announced the sweeping restructure to bring the underground lead and zinc mine in line with its plans to cut production.

The news follows six months of ongoing cash losses for the mining company, as the main orebody at its Endeavor Mine comes to the end of its reserve.

The mine had been the biggest employer in the town of almost 4,000 people, which is also enduring severe drought conditions.

Local MP Roy Butler described it as a "huge hit" to the local economy.

"I can imagine there's a huge amount of anxiety in people who are now facing having to seek employment in an environment where there's not a lot of employment," Mr Butler said.

"I dare say some of the people who do live in Cobar will probably have to leave Cobar to find work."

CBH was the largest employer in Cobar. ( ABC News )

The mine's chief operating officer, Visko Sulicich, said the company would spend the rest of the year test-drilling to determine the quality and quantity of the site's remaining lead and zinc deposits.

"If this drilling does not come up to scratch we would be looking at placing the mine in care and maintenance mode at the end of this year," Mr Sulicich said.

In November, the mine terminated the employment of 40 contractors from civil construction company McMahons in an effort to stem losses.

It is the second time in three years major job losses have been felt at Endeavor Mine.

In 2016, CBH Resources cut about 80 per cent of its workforce and dramatically reduced its output amid historically low commodity prices.

At the time, Mr Sulicich said the plan was to reverse the cuts when market conditions improved.