Investors reacted cautiously to news that the Supreme Court has allowed mining to resume in category B mines in Karnataka. On a day when the Sensex rallied 1.5%, Sesa Goa Ltd gained just 0.9% while JSW Steel Ltd actually lost 2.2%.

True, the easing of mining restrictions is expected to help Sesa Goa restart its 2.3 million tonnes iron ore mine and also help improve utilization levels at JSW Steel, which was coping with raw material scarcity. Yet the investor reaction points to limited gains in the immediate future. That’s because the apex court order is only the first step. Restarting mining requires several approvals from other regulatory bodies. The Supreme Court has also imposed stringent conditions for restarting of mines, and analysts such as Bhavesh Chauhan of Angel Broking Ltd fear that it would take at least six months before “meaningful" production resumes.

The resumption of mining will increase iron ore supplies. According to ICICI Direct, reopening these mines will bring about six million tonnes of iron ore a year. Still, going by the slow ramp up in category A mines—which got permission in September last year—analysts fear fresh supplies will take longer than earlier anticipated. “Even after assuming a favourable decision, we anticipate delays in actual availability of iron ore. Against earlier expectation of 8 mtpa of iron ore from Category B mines, we now estimate availability of only 3-4 mtpa in FY14," Edelweiss Securities Ltd said in a note dated 11 April. “We are disappointed by the pace and scale of restart of iron ore mining in Karnataka. Against our FY14 expectation of 20 mtpa of iron ore availability, we now see only 17 mtpa even after assuming favourable decision on Category B mines. Led by this, we cut our steel volumes for JSW (stand-alone) by ~9% and ~11% for FY14 and FY15, respectively," the note said.

The Press Trust of India reported that the court had cancelled 49 mining leases in Karnataka. Analysts had expected the ban on these mines to be lifted after a Supreme Court ruling in September regarding A category mines and had revised estimates for companies such as JSW Steel.

For JSW Steel, which sources a lot of raw material in this region, the cancellation of these 49 leases limits the gain, said analysts.

Of course, the impact of the order also has macro implications. The mining ban has taken its toll on the economy, with India losing its standing as an iron ore exporter. The court’s order should see a revival in the mining sector. That will ultimately have a beneficial impact on steel units in the region and banks can now see the first glimmer of hope that bad debts in the sector can eventually be repaid.

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