Australia's Mt Gibson shuts iron ore mine, gauges price outlook

* Will assess flood damage and iron ore price before restart

* Mine's closure will do little to attack global supply glut (Adds details, share price fall)

SYDNEY, Dec 5 (Reuters) - Mount Gibson Iron Ltd said on Friday it will need to assess the outlook for iron ore prices before deciding whether to reopen its Koolan Island mine in Western Australia, which has been shut due to flooding.

A dramatic drop in iron prices this year and a mounting global supply glut has left iron ore miners in Australia struggling to stay in the black.

Damage to the 7-million-tonnes-per-year Kooland Island mine - one of the smallest in Australia - was still being evaluated after sea water burst through a protective wall in October causing extensive flooding, according to the company.

Mt Gibson said it was placing the mine on care and maintenance and terminating most of the workforce, sending its stock down by 43 percent.

It now needed to evaluate the timing and cost of rebuilding the seawall before resuming production.

"The options will then be considered in the context of the outlook for the iron ore market, iron ore prices and exchange rates, and on the basis of what action will best preserve and create value for shareholders," the company said.

Iron ore prices have halved in 2014 to the lowest in more than five years as larger producers in Australia and Brazil pursue a strategy of over-production to knock out smaller competitors.

Iron ore stood at $71.10 a tonne on Friday.

Australia and New Zealand Bank is forecasting an average iron ore price of $78 a tonne next year, while Citigroup (NYSE: C - news) is forecasting $65.

Three other Australian iron ore miners - Fortescue Metals (Hamburg: FVJ.HM - news) Group

Sam Walsh, the chief executive of Rio Tinto (Xetra: 855018 - news) , Australia's biggest producer, has labelled iron ore mining in the current climate "survival of the fittest."

(Reporting by Lincoln Feast and James Regan; Editing by Stephen Coates)