Investors have shorted more than 50 million shares of Cliffs Natural Resources (NYSE:CLF). That's about one third of the total publicly traded float. Neither insiders nor institutions are bullish on the stock either as these two typically large holders own a combined 1% of the outstanding shares. Needless to say, investors really think this stock is about to fall off a cliff.

The long fall
Shares of Cliffs Natural Resources have already taken quite the tumble over the past few years. Just take a look at the following chart.

CLF Chart

CLF data by YCharts

While the market is up about 40% over the past three years, shares of Cliffs Natural Resources have fallen more than 80%. Investors don't think that the fall is finished as evidenced by the massive short position. It's a short position that's not without cost either as Cliffs Natural Resources pays a dividend with a current yield of just over 3% that short-sellers must pay.

Why are they short?
Short-sellers don't buy the company's turnaround plan. Not only is it in the middle of a tough cycle for both iron ore and metallurgical coal, but it's weighed down by debt and a battle with activist investors. Despite these challenges Cliffs Natural Resources is making an effort to turn around its operations.

Earlier this year the company installed a new CEO. In addition to that it has reduced its capital expenditures from just over $1.1 billion in 2012 to a range of $375-$425 million this year. On top of that, it has slashed SG&A and exploration costs by more than 50% over that same timeframe. Further, it has trimmed its debt down from more than three times EBITDA down to two times EBITDA while its debt to capital ratio has fallen from 45% down below 35%. This still isn't enough for investors as the company's core businesses just aren't seeing a real uptick in pricing or volume.

What's not turning
The metallurgical coal market, for example, has been tough for both Cliffs Natural Resources and Alpha Natural Resources (NASDAQOTH:ANRZQ). As the following slide shows, sales volumes for Cliffs Natural Resources hit a bump last year after improving off the bottom in 2011.

Source: Cliffs Natural Resources Investor Presentation

The North American coal market has also been really tough on Alpha Natural Resources, too, which is also a fairly heavily shorted stock. More than 22% of Alpha Natural Resources' shares have been sold short as the company is burning through cash. Because of this its stock is actually down more than 90% over the past three years.

Overall the seaborne coal export market was a bit sluggish last year. While U.S. metallurgical coal exports surged 25.8% the overall export market saw volume slip 6%. As the following chart shows thermal coal exports were weak last year as well.

Source: Alpha Natural Resources Investor Presentation (Link opens a PDF)

While U.S. exports were strong, an overall weakening global export market suggests weaker pricing. The coal market when combined with the fact that Cliffs Natural Resources' other iron ore business segments aren't seeing demand growth gives investors no reason to be bullish. Combine these weak market fundamentals to the risk that the turnaround fails and it is easy to see why so many investors are shorting shares of Cliffs Natural Resources.

Investor takeaway
That being said Cliffs Natural Resources reports earnings later this week on April 24 after markets close. Short-sellers don't think that will be a good report, given the amount of shares they've sold short. However, any hint of positive news could send short-sellers running for the exit because of how heavily shorted this stock is right now.