Czech billionaire Zdenek Bakala has made a fortune from investing in smokestack industries with a lot of hidden value, but his plays in coal and iron are being punished by investors leery of commodities and emerging markets.

He is the main shareholder of NWR, a coal mining company, which has seen its share price plunge almost 90 per cent this year.

“The share prices of mining companies have completely decoupled from economic reality,” complains Mr Bakala, as he puffs on a cigar in the Prague headquarters of his investment company, RPG Industries.

A former investment banker, he took control of OKD, a recently privatised Czech coal company, in a 2004 leveraged buy-out. It is now part of Netherlands-registered NWR.

“That has been our central thesis from day one,” he says. “The forgotten old economy assets have given us a better return than sexy assets. We like tangibles.”

Mr Bakala expanded his heavy industry gamble this year, when he snapped up a 25 per cent stake in Ukrainian iron ore producer Ferrexpo for £126m ($195m).

NWR, in which RPG has a 64 per cent stake, has agreed to buy the Ferrexpo shares from RPG, subject to approval by minority shareholders. The goal is to create synergies between the coal and iron industries in central Europe.

“It’s an investment in the region in a closely related industry. We’ve got a significant overlap of customers,” says Miklos “Mike” Salamon, the mining engineer who is NWR’s executive director.

However, the purchase has come at a terrible time for Ukraine’s heavy industry. The country has been beset by political turmoil, and has been hit hard by the global financial crisis, and by the steep fall in steel prices, one of its leading exports.

Ferrexpo’s share price has dropped by more than 90 per cent this year. In such a difficult environment, the synergies of owning a minority share of Ferrexpo with little prospect of taking control of the company are not immediately obvious.

“For minority and majority investors, Ferrexpo may be less interesting than the direct purchase of a Ukrainian coal producer,” says Bram Buring, an analyst at Wood & Co, a Prague brokerage.

Coking coal prices have also fallen sharply since a high in July of this year.

NWR’s strategy has been based on being central Europe’s leading coking coal producer. Because coal is expensive to transport, it is difficult for buyers to source it from other countries.

The idea was to supply the region’s steel mills, supposed to be working overtime, as Poland, the Czech Republic and other new EU member states raced to catch up with the rest of the Union.

But in recent weeks, the economic outlook has darkened for every country in the region, although growth will still probably be higher than in recession-bound western Europe. Car factories felt the first effects of the slump, announcing cutbacks and production holidays. Then came problems in the steel industry.

Mr Buring says that while the region may be insulated from coal supplies from other parts of the world, it is not insulated from price swings of steel and coal.

NWR remains bullish on coal’s prospects, recently preparing to invest as much as €800m in a Polish coal mine. Polish mines remain largely state owned and have suffered from underinvestment for years, which has steadily reduced their production. NWR is also investing €330m in its Czech coal mines.

The company has been fairly cautious about getting into debt, and earlier this year was sitting on a cash pile of €688m, which should give it the resources to ride out the troubled period ahead.

For the first three quarters of this year, NWR announced profits of €258m, a 137 per cent increase, on revenues of €1.6bn.

“We’ve got a good business. We sell everything we produce, we are profitable and we have cash,” says Mr Salamon.