Primitive technology has put out several videos about smelting iron, it's very interesting! It shows how labour and energy intensive it is. The quantity of charcoal he uses to obtain few grams of iron !
It is probably the first source of iron used by humans. These sludge/mud sources are pretty clean concentrated sources of iron oxides because of how they form.
It is just easiest way to make iron, they aren't used now because there's not much iron in them.