A flood of low-cost iron ore is driving tiny Australian miner Atlas Iron to its break-even point, underscoring the pain inflicted by a ramp-up in output by mega-producers Rio Tinto and BHP Billiton.

Atlas, which raced into production half a decade ago when iron ore prices were booming on the back of a supply shortage, is high on analysts' lists as "collateral damage", as BHP and Rio Tinto chase a larger slice of the 1.3-billion-tonne-a-yearglobal market .

Atlas is expected to confirm its fiscal 2015 production guidance of 12.2-12.8 million tonnes on Thursday, about as much as BHP and Rio together churn out in a week. But the problem is costs - more than double those of its bigger rivals.

UBS last week downgraded Atlas to "sell" from "neutral".

Atlas chief Executive Ken Brinsden has promised to attack costs, which at a targeted $64-$68 per wet metric tonne in fiscal 2015 are among the highest in Australia's Pilbara region.

Atlas sold its ore in the half-year to June 30 for $86.29 a tonne, but this half-year's average is set to be lower, given a 13 percent drop in spot prices .IO62-CNI=SI since July 1, while Atlas ore is also discounted because of its lower grade.

An Atlas spokesman said the company's cost position would be updated in Thursday's September quarter operations report.

"Atlas has to make some tough decisions," said James Wilson, a mining analyst for Morgans Financial. "BHP and Rio want their ore to be the most competitive in the world, which as a result could push lesser competitors like Atlas off the cliff."

In June, the 1.7 million-tonnes-per-year Cairn Hill mine, started in 2010 when iron ore fetched twice today's price, was shut after costs of $104 a tonne overran selling prices. Other small miners once hoping to make inroads into the seaborne-traded market but now struggling include Pluton Resources, Sherwin Iron Ltd
Atlas has its work cut out. Unlike Rio Tinto's modern rail network, Atlas must truck its iron ore to port, capping its production capacity at 15 million tonnes a year.

Rail would increase Atlas' production capacity and open up stranded deposits it holds in remote Pilbara districts, though talks with fellow miner Fortescue Metals Group and rail operator Aurizon Holdings have yet to yield results.

Highlighting investor concerns, Atlas is the most heavily shorted iron ore producer and the sixth most heavily shorted of all stocks on the Australian Securities Exchange, with 12.3 percent of its shares shorted as of Oct 14.

Valuations on Atlas are weaker than the median among nine Australian iron ore producers ranging from Fortescue to Flinders Mines, according to Thomson Reuters data.

At A$0.37, Atlas shares are trading at less than a quarter of their net tangible asset value of A$1.61. By comparison, rival Pilbara producer BC Iron's shares are worth 71 percent of their underlying asset value.

Standard & Poor's and Moody's have Atlas rated deep in junk territory, although both agencies said the company's strong cash position of A$264 million ($233 million) at end-June should help to shore it up at current prices.

"Even in a worst-case scenario whereby Atlas is not making a profit, its liquidity position should help them ride out a low pricing environment for a while," S&P analyst May Zhong said.

"A lower Australian dollar will help their position, but the dollar isn't falling as much as iron ore prices," she added. (1 US dollar = 1.1351 Australian dollar)