Definitely read the FAQ - it's explained very well there.
Just a couple things to remember - you click on Gloom'rel, he asks you whether you're willing to sacrifice to learn to smelt dark iron, and a large ghostly chalice appears next to him. You click on the _chalice_ next and it lets you deposit the 2 star rubies, 20 gold bars, and 10 truesilver bars. Then I believe you click on Gloom'rel again to actually learn to smelt.