Today's plunge in iron ore is creating tomorrow's acquisition targets.

With prices at a five-year low, only a handful of companies worldwide can make money selling iron ore, according to UBS. Some Chinese mines have closed, while Western Desert Resources and London Mining have already failed. Pessimistic analysts expect the commodity to slide at least a further 14 per cent before the end of next year as a supply glut continues.

Among the most vulnerable are Western Australia's Atlas Iron, BC Iron and Gindalbie Metals, according to stock broker Fat Prophets. All three - valued at less than $US200 million ($232 million) after losing two thirds of their value this year, or more - are struggling with production costs that are too high for the current market. Private funds such as X2 Resources, which has raised as much as $US3.75 billion from investors, may be able to pick up bargains before an iron-ore rebound makes the assets viable, said Ernst & Young.

"The smaller miners in both China and Australia could be the collateral damage," said Freya Beamish, a Hong Kong-based economist at Lombard Street Research. "Iron ore prices are on a structural downturn that could play out over several years."

In play

The price slide has put even the biggest producers in play. Ivan Glasenberg's Glencore in July approached Rio Tinto with a deal that would have created the world's largest mining company. Rio rejected the proposal the following month.

Iron ore has fallen 48 per cent this year, partly on concern China's economic slowdown will weaken demand for the steelmaking material. At the same time, BHP Billiton., Rio and Vale have increased production to bolster their market shares, creating a glut and preventing a price rebound any time soon.

The commodity, approaching $US70 a tonne, will fall to less than $US60 in the third quarter of 2015, Citigroup said in a report this month. Only BHP and Rio, the world's two largest mining companies, and Pretoria-based Kumba Iron Ore, controlled by Anglo American Plc, produce profitably at that price, according to UBS analysts.

"For those in the high-cost area, it's a case of survival," said Mike Elliott, Sydney-based global leader for metals and mining at Ernst & Young. "If you're only ever going to make money at the peak of a commodity price cycle, then you may call it quits."

A representative for BC Iron had no comment on the company's break-even price for iron ore or the prospects of a takeover. A representative for Atlas Iron and Gindalbie didn't return a call seeking comment. All three companies are based in Perth.

Distressed assets

London Mining, valued at more than $US800 million in 2011, went into administration in October. Just hours before the company's Marampa Mine in Sierra Leone was set to close, it was bought by Timis Corp. Credit also dried up in September for Western Desert, which operates the Roper Bar project in the Northern Territory. Receivers have started to look for potential buyers.

It's not only tumbling prices that are threatening smaller producers. Companies unable to recover their production costs also find it harder to obtain financing, while project writedowns become more likely, said Greg Smith, head of research at Fat Prophets.

"There are going to be plenty of assets around or moth-balled operations, if it gets to that," said Smith.

Deals, activism

Some miners that are close to breaking even at the current iron ore price might be able withstand the commodity's slump by halting production until the market picks up, said Ernst & Young's Elliott. Those that can't may also be targets, he said.

Funds such as London-based X2 Resources, co-founded by former Xstrata chief Mick Davis, are logical buyers, according to Elliott. Some funds can wait years before profiting from an investment and may be able to buy the assets "relatively cheaply," he said.

Resources companies sitting on millions of tonnes of reserves, mining licenses and other assets may also appeal to activist investors who could push for changes to boost returns. For instance, a breakup of Arrium, the iron ore producer that's fallen 83 per cent this year, might unlock value in the company's unit that makes rail wheels and metal balls, Morningstar said last month.

Waiting game

Shares of Atlas Iron, which digs for iron ore in the Pilbara region, have tumbled 82 per cent this year. That's even after the company cut capital expenditure and raised cost-saving targets. BC Iron has dropped 89 per cent and Gindalbie has plunged 75 per cent.

According to UBS estimates, Gindalbie started losing money when iron ore fell below $US98 a tonne, while Atlas and BC Iron became unprofitable when the price dropped through about US80.

The stock collapses reflect doubts the companies will ride out iron ore's price slump, said Shannon Rivkin, a director at Rivkin Securities in Sydney.

"It's guaranteed that we'll see a lot more companies go out of business," he said. "There will be buyers but they're going to have deeper pockets and longer timeframes. Iron ore prices are not going to be this low forever."