Cliffs Natural Resources (NYSE: CLF) is a struggling iron ore miner. While that's not surprising to hear since iron ore prices have fallen hard, it might surprise you just how much of its investors' money Cliffs has made disappear. But it isn't magic, it's just accounting.

The doldrums
Iron ore prices have fallen hard since peaking in 2011. It's no wonder, then, that the entire industry is feeling serious pain. Cliffs, one of the largest American iron ore miners, for example, has seen its earnings fall from roughly $11.50 a share in 2011 to a loss of just over $47.50 last year. And, no, that isn't a typo.

Iron Ore Spot Price (Any Origin) Chart

Iron Ore Spot Price (Any Origin) data by YCharts

A quick look at shareholder's equity will give you a feel for just how bad things are. At the start of 2014 shareholder equity stood at around $6.1 billion. By the end of the year it was negative $1.4 billion. Shareholder equity is effectively what shareholders "own," or looked at another way, what would be left if the company were liquidated today. That's clearly not how a company makes its investors money. But how did things go so wrong so fast? 

Hitting the rest button
The problem isn't iron ore. In fact, if you look at Cliffs' core U.S. iron ore business and ignore all of the other stuff that happened last year, management says the company actually earned around $1.70 a share. In fact, if you look at the cash flow statement, the company's net income was negative $8.3 billion, but its operating activities actually generated nearly $360 million. And by the end of the year it had only burned through $45 million worth of cash. So, what on Earth happened?

Cliffs effectively hit the reset button. In 2014 it took roughly $9 billion of goodwill and other asset impairments related to its decision to refocus around just its U.S. iron ore business. In fact, 2014 was, essentially, an everything plus the kitchen sink year for Cliffs. So, it looks like it wrote down the value of just about anything and everything it could, ripping the band aid off in one swift move. Why? because the U.S. iron ore business is the only one not bleeding cash.

CLF Chart

CLF data by YCharts

While most of those costs didn't directly impact the company's cash flow, that doesn't mean they didn't have a major impact on your investment. Which is why the book value of Cliffs is now negative, shareholders ate the cost of the company's decision to remake itself. It's also why the shares have fallen nearly 80% since the beginning of 2014. That said, Cliffs will be a smaller, but hopefully more profitable company once it's through with the process.

Still some more to go
Only it isn't done just yet. For example, in the first quarter earnings from continuing operations amounted to about $1 a share, but the loss from discontinued operations came in at around $6 per share. Netting that out, the company lost about $5 a share and shareholder equity fell another $500 million or so. 

In other words, the only business making money is the one Cliffs wants to keep, but until it can get out from under the rest, red ink is likely to keep flowing. The big problem being that the other businesses are so weak and/or undesirable that finding a buyer could be impossible. That could lead to more write downs and shuttered assets, and the debt associated with them, weighing down the balance sheet while still costing Cliffs money to own (because of such expenses as taxes and security, for example). 

Cliffs Natural Resources' transition into a leaner, meaner U.S. iron ore business just isn't over yet. And it won't be until it actually gets out from under the assets that it no longer wants (essentially everything other than its U.S. iron ore operation). And while recent insider buying is a positive sign that management thinks the company is bottoming out, it doesn't mean that a rebound is around the corner. Until the transition is fully complete, look for more red ink and expect additional shareholder pain. Unless you're a really aggressive investor, you're probably better off on the sidelines for now.