* Atlas to announce review outcome in two weeks, Lazard advises
* Atlas seen as most vulnerable to iron ore slump - analyst
* Could consider cutting output - analyst (Adds more comment, details)
By Sonali Paul and James Regan
MELBOURNE/SYDNEY, April 7 (Reuters) - Australia's Atlas Iron Ltd is reviewing its operations and could look to sell assets to combat a dramatic slide in iron ore prices in a vastly oversupplied market dominated by mega producers.
Shares in Atlas, one of a handful of small miners that emerged to meet rising demand for the steel-making mineral in China a decade ago but now struggling to stay afloat, were voluntarily suspended on Tuesday as it maps out a strategy.
Atlas shares have plunged 40 percent since January, outpacing a 35 percent decline in iron ore, and the firm said it has hired Lazard to advise on ways to reduce overheads.
All but the world's biggest miners are on the ropes following iron ore's dive, stoked by a flood of new supply from Rio Tinto, BHP Billiton and Vale just as Chinese demand growth slowed.
Chinese mines - among the least efficient - will absorb most of the losses. But analysts have warned small Australian miners, such as BC Iron and Atlas, were operating close to break-even and will need to slash overheads.
Atlas could move to suspend production at the higher cost Mt Webber and Abydos mines, leaving it to focus on its more profitable Wodgina deposit, some analysts said.
"I reckon you would see them shrink to about two to three million tonnes a year from Wodgina only," said a analyst who has covered Atlas since its inception in 2004 and did not want to be named. "Wodgina is the closest to Port Hedland, has reasonably better grade and would be the cheapest operation."
Cheaper oil to run diesel-powered equipment, lower freight rates and a weaker Australian dollar against its U.S. dollar-priced sales have helped soften the blow, but the most recent price plunge means Atlas is operating with little or no profit margin
Spot ore .IO62-CNI=SI dropped to $46.30 a tonne this week, the lowest level since The Steel Index began publishing prices in October 2008.
That compares with a January average all-in production cost of A$60.80 ($46) CFR (cost and freight) China reported by the company.
"Atlas has already commenced discussions with a number of its stakeholders in relation to various initiatives intended to further reduce costs and preserve value," the company said, adding it would not comment further on the review.
Standard & Poor's downgraded Atlas' senior secured debt to 'B-' in January, warning it has debt due in 2017.
The company borrowed $275 million through a term loan in the U.S. markets which matures in December 2017. The loan, which has no earnings-based covenants, paid a high margin of 750 basis points over the Libor benchmark.
In a sign of investor doubts over the company's ability to cover its interest payments or refinance, traders are quoting the loan in a wide bid-offer spread at 60-70 percent of par value, according to data from Thomson Reuters Secondary Market Intelligence.
Steps Atlas could take to shore up its cash flow pre-selling as much iron ore as possible, a measure bigger rival Fortescue Metals Group has already taken, analysts said.
"Eleven out of 18 analysts have sell or strong sell recommendations on Atlas shares, which have lost nearly 90 percent of their value over the past year. ($1 = 1.3125 Australian dollars) (Additional reporting by Sharon Klyne; Editing by Ed Davies)