KELLOGG, Idaho Sunshine Mining Co. will lay off 300 workers and drastically reduce production at the state's largest silver mine, the latest of several cutbacks in the northern Idaho mining industry.

''If we continued at full production, we would lose twice as much money as if we simply shut down,'' said Don Hullinger, a spokesman for Sunshine Precious Metals Inc., the Dallas-based company's mining division.

''We've got to get through this period of terrible prices before we can make this a profitable operation.''

The 107-year-old Sunshine Mine has been something of a bellwether for the silver industry with its stock prices often running parallel to the condition of the silver market. The mine took its place in history with one of the worst hardrock mining accidents. A 1972 fire swept through the works, killing 91 workers trapped underground.

The coming layoffs were announced Tuesday, three days before the start of labor negotiations with the United Steelworkers of America. Hullinger said the two events were unrelated.

''We're extremely disappointed with their timing,'' said Steve Brown, a spokesman for the union. ''They've obviously used this to their advantage.''

The mine last closed in April 1986 and reopened again in November 1987 when the average price of silver was $6.30 an ounce.

The Sunshine Mine lost about $6 million last year when silver prices averaged $4.82 per troy ounce. This year, silver has been trading around $3.90 an ounce.

Silver closed Tuesday at $3.88 an ounce on the New York Commodities Exchange, down a nickel from the day before.

Hullinger said Sunshine's plans were not complete. The company has decided to cut employment from 436 to 155 by June 1. Production at the mine would cease in all but a few stopes that contain high-grade ore, he said.

Even under the new production schedule, the mine would produce 2.6 million ounces of silver a year, Hullinger said.

Late last month, Sunshine told the union it would reopen the three-year contract signed in May 1988. If the company had chosen not to renegotiate, the existing contract would have been extended a year.

Now, the contract expires in a month. Brown said the company's announcement will cut further into the union's bargaining power, already weakened by the metals market.

''Without some recovery in silver prices, we can pretty well count on the mining industry disappearing piece by piece,'' Brown said.

Several other northern Idaho mines have cut back or closed.

Coeur Mine will shut down next week, idling 130 workers. Hecla Mining Co.'s Lucky Friday Unit in Mullan laid off 10 workers when it closed a silver-producing stope last year.

Two base metal mines, the Star and the Bunker Hill, also have closed, laying off 350 people combined.

Sunshine laid off 20 salaried employees last month.

The company can't break even at the mine unless silver sells for $5, Hullinger said.