Emergency services responded to the disaster at Cobar, in northwest NSW, at 3.45am on Tuesday, and were told one man had been confirmed dead after the explosion.
Two women were then brought to the surface, but one of them died shortly after.
The dead have not yet been formally identified, but they are believed to be a woman in her 20s and a man in his 60s who had both been living in Cobar.
The second woman, also a Cobar local in her 20s, was flown to hospital suffering hearing damage and shock.
Cobar mayor Jarrod Marsden said he was struggling to come to terms with the deaths, but the town would need to find strength in community to get through the tough time.
"Two families' loved ones didn't come home from a night shift. Their lives have been changed forever, just decimated by this," he told AAP.
"We're devastated, just in shock and it's impossible to try and find the words to describe it."
The NSW Resources Regulator confirmed it would steer an investigation into the incident, while police will also prepare a report for the coroner.
ASX-listed Polymetals, which acquired the mine in 2023, requested that trading in its shares be paused for two days after a "serious safety incident" but it did not otherwise comment on the deaths.
NSW Mineworkers' Alliance spokesman Tony Callinan called for an open and transparent investigation into how the incident happened.
"We will leave no stone unturned in identifying what has occurred here," he said.
"This is a tragic reminder that underground mining is a dangerous job … events like these send shockwaves through our entire mining industry."
NSW Minerals Council chief Stephen Galilee agreed the tragedy highlighted that safety must always be the number-one priority on sites.
"The thoughts of tens of thousands of miners across NSW will today be with the families and colleagues of the deceased and injured, and also with the residents of the mining community of Cobar at this extremely difficult time," he said.
Premier Chris Minns said it was a heartbreaking day for the Cobar community and the tragedy would be felt across the entire mining industry.
"The number-one priority in any mine must be safety … everyone who goes to work has the right to come home," he said.
"While safety protocols and procedures have greatly improved in mining, these deaths are a sobering reminder of why we need to always remain vigilant to protect workers."
Local MP Roy Butler said the deaths would be felt "deeply and widely".
Copper and gold mining are the two leading employment industries in the region.
The mine is a major underground silver, zinc and lead mine, 40km north of Cobar, home to about 3600 people.
It is the second-largest project in the polymetallic region known as the Cobar Basin.
The latest incident in the town follows the deaths of three workers in 1980 in a shaft fire, while a cave-in in 1971 killed four miners.
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