Not that I've tried blacksmithing... but perhaps I can answer your question.
There is a chance that perhaps you don't have any skill ( 0 level) in the required skill (that a blacksmith has to teach you) so everytime you put something into a furnace it gets reduced to ashes.
Also, perhaps you've the skill indeed, in that case, keep in mind that leaving the iron ore too much time into the furnace, will turn it into ashes. When it becomes molten iron, you're supposed to remove it from the furnace, I think the next step is stock casting, but it seems that blacksmithing is giving some issues right now, so I don't know if this last step could be done.