Egypt’s pristine sand has been central to beach tourism and basic glass-making, but little else.  Around the world, however, high-quality silica sand fuels industries from high-strength glass to microchips. Now, the global economy is attempting a snap recovery from the pandemic, stressing silica sand supplies to sectors ranging from water purifiers to drilling for shale gas. That could fuel an investment boom to mine silica sand from Egypt. But the government must be careful.

Walking on the pristine beaches at Zafarana and the Sinai Peninsula, people can feel one of the cheapest yet most sought-after commodities under their feet. “Silica sand is being used for well-diversified applications, including paving roads, glass-making, foundries that create the building blocks of microchips, oil and water filtration, industrial casting, sandbagging, etc.,” noted IMARC Group, a research firm, in a report published in February. The World Wide Fund for Nature (WWF) described it in a September paper as “a vital component of modern living.”

Now, the world requires more of it than ever before. The global microchip shortage affecting automobiles and less sophisticated electric equipment is forcing producers to expand, ultimately requiring more silica sand. In addition, pharmaceutical companies developing COVID-19 vaccines are ramping up production to inoculate the world, which means rising demand for glass vials. Moreover, governments, including Egypt’s, are fast-tracking digital and conventional infrastructure developments, digital transformation in all sectors, and promoting high-tech manufacturing. All those investment opportunities require electronic equipment that wouldn’t exist without silica sand. “Although largely a forgotten commodity until now, today the silica sand market is … expanding and [raising] prices along with it,” noted journalist Robin Bromby writing for Small Caps, an Australian news portal, in February.

That is enticing investors to search for silica sand mines, the starting point of the microchip global supply chain. “We have seen significant interest from family offices and smaller institutional investors, who are starting to ask informed questions [about] product specification and applicability of particular grades,” Julian Babarczy, executive chairman of the Australian mining company Perpetual Resources, told the investment portal Stockhead in October. “There is much greater awareness of key demand drivers supporting industry growth and of some of the key profitability drivers … such as logistics and access to markets.”

Silica mining doesn’t emit harmful emissions, and it doesn’t require heavily polluting machinery or processes. Additionally, nature replenishes silica sand from currents scraping away soil, pulverized seashells, and sediments under corals. The problem is “we are consuming sand faster than nature can replace it,” noted the WWF paper. If the Egyptian government decides to promote more investments in silica sand, it needs to be careful to avoid the potential environmental impacts of over-mining.

Silica in Egypt

Local silica sand reservoirs are primarily along Zafarana’s beaches and north and south Sinai. However, there are deposits in 16 other locations on Egypt’s two coastlines, according to a South Valley University study in 2017, including 11 sites along a 400-kilometer (248-mile) stretch from Rashid to Rafah on the Mediterranean Sea.

According to the Nuclear Materials Authority (NMA) in its 2021 annual report, 41 industries in Egypt rely on silica sand. It estimates the country’s reserves at 12 million tons in relatively easy-to-reach locations between five and 20 kilometers from existing dirt paths. Those sands are mostly first-grade, with between 95% and 99.5% silica.

Hassan Alakimy, who wrote the NMA report, said local investments in mining silica sand are limited, with small and medium private companies dominating the sector. Additionally, there are few incentives for them to scale up. Only 30% of mined silica sand is used domestically, primarily to make basic glass sheets for windows and home accessories for local consumption and export to the region, according to data from the Glass Division at the Federation of Egyptian Industries (FEI). The FEI’s Glass Division says Egypt achieved self-sufficiency in glass after doubling the national production output in 2012, when “two large factories” opened.

The rest of Egypt’s mined silica sand is exported without any refining or processing, the NMA report noted. That is a significant loss.

The government only recently started promoting other industries that rely on silica sand. The transition to clean energy, in particular, opens a significant opportunity for domestic companies to use locally sourced silica sands.

In May 2017, Daily News Egypt reported the Ministry of Military Production contracted with PSE German Alliance to do a feasibility study for a $2 billion plant that would use local silica sand to produce enough solar panels to generate 1 gigawatt of electricity a year. By May 2018, China’s GCL Group had signed an MoU with the ministry to build the facility, with the Chinese company fully responsible for securing sand from local mines.

During the signing ceremony, then Minister of Military Production Mohamed al-Assar said the plan was to build several similar facilities that could manufacture enough photovoltaic cells to generate a combined 5 gigawatts of electricity a year.

In February 2019, GCL Group restarted negotiations to build a 600-megawatt-solar-cells-a-year plant rather than the targeted 1-gigawatt facility. At the time, Allen Gai, GCL’s investment and development director, said the group was still looking to finance the project and select a local partner.

In May 2019, the government unveiled plans to build a specialized free zone southwest of New Aswan City. It would manufacture “electronic boards, photovoltaic cells and reflectors from the 98% silica sand … found in large quantities there,” said then Investment Minister Sahar Nasr.

The proposed zone can accommodate 160 projects spread over 194 acres, worth a combined $2.3 billion in investments, creating 15,000 jobs, said Nasr. At full capacity, it would contribute $1.1 billion to Egypt’s GDP and increase exports by $675 million annually, she added. ٍ

Since then, there have been no updates on either the GCL Group complex or the New Aswan City free zone.

Opportunities arise

As the global economy looks to recover amid the pandemic, several industries that rely on silica sand are poised for growth. According to Quantalign Research, a specialized think tank, significant demand for silica sand is clean energy investments, mainly to make solar panels. “The market will witness an increased demand for premium-quality silica sand, which will further aid in the growth of the [overall] silica sand market,” noted the paper. In addition, IHS Markit analyst Josefin Berry told Stockhead, a news portal that demand for silica sand used in solar panels would increase by 34% in 2021 compared to 2020.

Additionally, companies are researching new technologies to use silica sands to store generated energy longer. “While decarbonization of electricity has a clear path, decarbonization of the whole economy ― which includes things like building heat and industrial processes ― is more challenging,” said Zhiwen Ma, a researcher at the Economic Long-Duration Electricity Storage by Using Low-Cost Thermal Energy Storage and High-Efficiency Power Cycle project. It is the brainchild of the U.S. Department for Energy, whose primary focus is how to use high-grade silica sand to make rechargeable batteries.

Meanwhile, the U.S. National Renewable Energy Laboratory announced in September it is testing new thermal energy storage technologies that use “inexpensive silica sand [instead of lithium] as a medium” to store electricity. Ma noted silica sand silos would offer unprecedented flexibility to scale up or down depending on the energy needed. They also could be easily connected to the power grid and placed in decommissioned coal or gas plants.

Another driver of the silica sand demand boom has been the pandemic, as more people seek out new computers and smartphones so they can work and shop from home. Intel Corp.’s CEO Patrick Gelsinger said in December that microchip demand had increased 20% since the start of the pandemic.

Meanwhile, many governments are expanding digital infrastructure to accommodate rising internet use. In Egypt, government figures show the number of unique internet users increased 8.1% from January 2020 to January 2021. According to a release from the Cabinet Information and Decision Center in November, Egypt increased its “digital transformation” budget by nearly 63% in the fiscal year 2020/2021 compared to a year earlier.

Other pandemic-related factors driving up demand is the need for glass vials to hold COVID-19 vaccine doses. “There’s a current shortage of vials for vaccines. They require high-quality glass, which needs high-quality sand,” VRX Silica Managing Director Bruce Maluish told Stockhead in February.

Fueling that trend in 2022 and beyond will be government policies in some wealthy countries to encourage unvaccinated people to get the jabs, as well as the rollout of booster shots to combat the Omicron variant that surfaced in November.

Meanwhile, emerging and wealthy markets are expediting construction and infrastructure investments to offset rising unemployment in tourism, hospitality, and other sectors that almost halted due to lockdowns to curb COVID-19’s spread. That includes Egypt’s plans to build 45 new cities by 2052 with monorail and fast-train networks to connect them and upgrade existing infrastructure. “Upcoming infrastructure projects in various countries are envisioned to stimulate the construction industry, thereby boosting the demand for silica sand across different sectors,” said IMARC Group’s February report.

An unexpected trend that requires silica sand is shale gas mining. The cost of natural gas and oil has been on the rise in 2021. “Several countries are preferring naturally available shale gas … to reduce their dependence on crude oil,” said IMARC Group’s February report. “That growth … is expected to increase the demand for silica sand.” It explained that “silica sand is used as a proppant” to open a hydraulic fracture during or after a fracturing treatment.

That growth in demand for silica sand should continue for years. A VRX Silica stock market filing predicts the international sand market could reach $60 billion in 2030, up from $14.1 billion in 2020. The document also noted that 47% of global demand for silica sand could come from the Asia Pacific region, including China, as it remains the manufacturing hub for wealthy countries.

Precious commodity

The immediate fallout is that silica sand is getting more expensive. According to Refinitiv Datastream, a U.K.-based provider of financial markets data, silica prices in the United States, Europe, and China have effectively doubled, hovering close to $4,000 a tonne in September, compared to less than $2,000 at the start of the fourth quarter in 2020. “Silicon prices have been soaring as recent output curbs in China have made the supply even tighter, [adding to] the first-half deficit this year of more than 100,000 tonnes,” Jorn de Linde, an analyst at CRU Group, a commodities portal, told Reuters in September.

In July, U.S. Silica Holdings informed Nasdaq it was increasing its non-contracted silica sand prices by 15%, effective September. “The increase in prices is requisite to help balance significant cost increases in energy, transportation, materials, and manufacturing costs,” noted the stock exchange statement. That sat well with investors, as the U.S. Silica Holdings shares rose nearly 171% after the announcement.

VRX Silica noted in a May presentation that the commodity’s prices would grow by over 10% from 2021 to 2025 in response to demand increasing 21.5%. Citing patterns since 2015, it said the Asia Pacific region would continue to rely on imported sand as the consumption rate continues to outstrip supply, especially since several Asian governments are tightening regulations on local silica sand dredging.

Risky mining

Finding industry-grade silica sand is not as simple as going to the desert and digging. “Desert sand is too smooth, the grains too round, shaped by wind instead of water, so it won’t easily adhere to other materials,” said the WWF on its portal. That is why North Africa and the GCC depend on imported sand.

Marine sand is usable but requires more processing to extract the salt. The best industry-grade silica sand comes from river beds due to its rough surface shaped by water currents, which makes binding them with other materials more accessible. However, river silica sand makes up “less than 1% of the world’s land, and is the most adversely affected by excessive, unregulated, if not illegal, mining,” noted the WWF.

That is highly problematic as many people live and farm by rivers as they are a source of fresh water. “The land beneath our feet is sinking away,” said an Indian girl in a video she shot with her smartphone and posted on social media in January 2015. She showed how sand miners in Kerala are digging away her village’s riverbanks to the point where parts of the town collapse in the water.

Similar problems appear when over mining silica sands in coastal areas, causing shoreline erosion and deltas sinking. “As sea-level rise associated with climate change threatens coastal areas, [and] sand in coastal areas will play an increasingly greater role in determining the amount of damage from floods and erosion,” according to a 2021 report written and published by the Multidisciplinary Digital Publishing Institute (MDPI), an independent publishing house.

The Indonesian Center for Forestry Studies published a report highlighting the risks for Sumatra’s Riau islands, where sand dredging can “sometimes [come] within meters of the shoreline … causing extensive damage to coral reefs and seabeds. It has also wiped out the fishing grounds.” The report noted that since 2005 at least 24 small uninhabited islands in Indonesia have vanished after dredging by silica sand miners.

Meanwhile, cities on the northern Philippines coastline are getting closer to the seafront and sinking at a rate ranging from 4.3 to 4.8 centimeters a year due to unregulated dredging.

In 2016, researchers from the State University of New York and University of California published a study warning that “sites with [caving] rates of 1.8 to 3 centimeters a year are projected to be underwater in 50 to 70 years. [Those with caving] rates of 4.3 to 4.6 centimeters a year are projected to be underwater in 30 to 40 years.”

The study also noted that island and coastal cities in Vietnam, Cambodia, China, India, Morocco and California face similar crises caused by informal dredging.

Making it sustainable

The MDPI paper stressed that the silica sand mining industry’s fragmented and unregulated nature is causing those environmental issues. “Illicit mining activities compound environmental damages and result in conflict, the loss of taxes/royalties, illegal work, and losses in the tourism industry,” noted the MDPI report.

It found that in 70 countries, most mining is informal or unregulated. “Sand mining is the world’s largest mining endeavor, responsible for 85% of all mining extractions,” noted a study by the Yale School of the Environment in August 2019. “It is also the least regulated and quite possibly the most corrupt and environmentally destructive.”

Accordingly, governments must enforce a loophole-proof regulatory framework for formal sand miners and a capable policing apparatus. Silica sand can be efficiently mined with essential tools in remote areas and smuggled into the formal market with no way of tracing its origin. The MDPI paper noted that states promoting silica sand miners and governments must focus on reducing poverty and unemployment to give people better options than working at informal sites.

The MDPI paper also stressed that governments must have an investment strategy with clear environmental and sustainability criteria and benchmarks to prevent over-mining. That includes “creating mechanisms to evaluate the possibility of ecological disasters resulting from excessive … sand exploitation, as well as educating the public,” said the report.

To ensure the government can realize a profit from national resources, authorities must also offer taxation and royalties schemes that are attractive for formal institutional investors and discourage informal miners.

Getting all those factors right could open the floodgates for silica sand investments in new locations, such as Egypt. Other countries are already benefiting: Despite the informal mining challenges, registered investors, particularly in Australia, the leading silica sand supplier to Asia, nearly doubled in 2020, noted Stockhead in October.

Sidebar

Fueling a microchip boom

Microchip producers are betting they can find enough silica sand to fuel massive expansion plans.

With few signs the microchip shortage will end soon, several manufacturers have been vocal about boosting production. That ultimately means they would require more high-grade silica sand than ever. “Supply and demand are the most extreme they have ever been,” said Simon Segars, CEO of Arm, a semiconductor design firm. He fears the gap could stretch for another year if producers don’t raise production.

Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest microchip producer by volume and third by revenue, said in a statement it plans to double output capacity by 2024. Various media reports estimate the company supplies at least 90% of the world’s microchips. “We started speeding up our capacity expansion at the beginning of last year,” TSMC’s Senior Vice President Y.P. Chin told a November forum organized by National Cheng Kung University in Taiwan. “But the semiconductor supply chain was still unable to catch up … with demand growth.”

To meet current and expected demand until 2023, Chin said TSMC spent $28 billion this year to boost production at existing facilities.

To meet rising demand beyond 2023, TSMC allocated $100 billion in new investments, including building a facility in Japan to make old-tech chips, primarily used in cars, basic electronic devices, and home appliances. It is also building another plant in Taiwan to manufacture advanced microchips for mid-range smartphones and basic microchips. Both facilities will come online in 2024 at a combined cost of $9.04 billion.

Additionally, TSMC said it started construction on a $12 billion facility in the United States last July. It will make their most advanced microchips, usually reserved for the most expensive and fastest smartphones. It also should start production in 2024.

The world’s most profitable microchip maker, Intel Corp., has been unsuccessful in its attempt to expand production at its Chinese plant due to the ongoing political tensions between Washington and Beijing.

In mid-December, Intel CEO Patrick Gelsinger told reporters the company would build a $7.1 billion microchip packaging facility in Malaysia, which will start production in 2024. The facility will package low-tech chips for cars and general-purpose electronic devices to cater to Asia-based electronics producers.

Other producers also plan to expand. For example, U.S. chipmaker Micron has announced a $150 billion investment in manufacturing and R&D over the next 10 years.