Julius Masaba

05^th June, 2020

By Julius Masaba

About three weeks ago, a gentleman on my LinkedIn network asked me what it would require one to start sand mining and the financing opportunities available, after visiting my LinkedIn profile and seeing my professional background and what I currently do.

I guess he also came across some of my articles on business, investment and finance and ideas or perspectives on startup funding. I smiled because; (i) I saw an opportunity for content generation, and (i) I saw an opportunity for business. So I decided to focus on the former, first.

You see on these streets, consulting gives you the needed expertise on being a thought leader. When there is a challenge at hand, you are forced to think hard, faster and efficiently to come up with solutions for a client. Lest you be caught off-guard next time.

So, in the same past weeks, I posted on Facebook asking anyone who could be into sand mining. Unfortunately, I got no feedback except from a close WhatsApp contact. I then embarked on hard research and managed to get some contacts in the Ministry of Energy and Minerals to whom I sent emails. But up to now I have not got any response, including the environmentalists – National Environmental Management Authority (NEMA) and Lands Ministry.

However, I later got a contact from the Department of Geological Survey and Mines, who provided me with some information on the sand mining industry regulation and policy.

About the Sand Mining Sector

Sand is the second most consumed resource after water.

In Uganda, sand mining became serious commercial business a few decades ago due to the increasing demand for raw materials in the construction and infrastructure development industry. But before that, it was informal casual business, at very small scale or artisanal level.

The Ugandan Government through the Parliament amended the Mining Policy 2001 and Mining Act 2003 to get the Mining Regulations 2004 which classified sand as a mineral like copper or gold. Sand or silica sand, murram, clay granite are all minerals now and regulatory policies have to be visited before exploiting such a resource.

There was little regulation noise until the sand deposits in the country began to be over-exploited and on the verge of dwindling due to over mining by big players as the number of both government and private construction projects increased in the country. Road projects like the Northern By-pass, Mpigi-Mityana Road, Kampala-Masaka Road, private estates and apartments in Kiira, Entebbe, etc.

The key sand mining areas in Uganda used to be Ggaba, Busaabala, Portbell, Garuga, Nkumba, Heritage, Entebbe, Lwemwedde, even Katosi-Mukono; but currently the controversial Lwera – Masaka (still on L. Victoria) is the hotspot for almost every big and small sand miner in the sector.

Prominent companies mining sand in Uganda and mostly in Lwera include Mango Tree Group, Hong Hi Jeng Cai, Zhongs Industires Ltd, Hesaduo Company, Porch Mining Company, Lwera Swamp, Aqua World, Tesco Industries, Sim Construction, Capital Estates, DMW Uganda Ltd, Freedom Multi-Company, Lukaaya Sand Dealers, Ark Uganda (of Pastor Kakande), and many others. But some were stopped.

You will note that some of these companies are owned by Chinese. Also, many of the companies above have been or are embroiled in court cases with government agencies especially NEMA for flouting mining regulations, not having licences and disobeying environmental management adherence procedures. Some of these companies use very sophisticated sand mining machines, like dredgers.

Just two weeks ago, DMW Uganda Ltd was awarded over UGX180Bn ($49m) by court for loss incurred due to cancellation of its licence by NEMA. The company owners later rejected the offer, demanding for more money! Such is what happens when you join the sector.

Investing in the Sector

There are two ways you can do this; informally/artisanal and formally (as a registered entity). If you are just doing it on your own private land, you can extract the sand and sell to those building their houses. Very little capital needed. But if you want to mine it on large scale and sell locally or export, you will need to register a company.

On top of that, get a valid prospecting licence, submit prospecting licence returns, show a desired map of the area in particular, get a mining licence, and submit an activity operations plan, submit a project brief, execution plan II and have adequate financial resources. There are also other fees paid upon renewal of the mining licence plus exploration fees.

Current players in the sector have invested billions of money to be able to meet the increasing demand from construction projects in Uganda. They are also able to purchase or hire heavy equipment like excavators, trucks, sand dredgers, etc., such is high tech-equipment. Dredgers are known to mine sand more than ten (10) meters deep, the cause of alleged over mining or over exploitation. The machines go beyond required mining depth.

The Thumbs Down (what might discourage you)

1. Highly capital intensive – Indeed, anything to do with mining requires a lot of heavy equipment thus the need for a fit financial position. Small players may need between half a billion and UGX1.5Bn ($405,400). With UGX1.5Bn ($405,400) and over, you should be able to acquire/purchase some excavators, dredgers, delivery trucks of various sizes (25Ton, 20Ton, 10Ton, etc.) like the SinoTruk, Isuzu Forward, Elf, etc. This is the reason very few individuals venture into the sector. So, olina waaka?

Researched thinking tips to counter the problem

1. Explore asset/lease financing – For example you may take advantage of Housing Finance Bank Vehicle & Asset Finance (VAF), Stanbic Vehicle & Asset Finance, CBA’s Vehicle & Asset Financing, DFCU Asset Finance, etc. It’s almost like leasing. This allows you to use the equipment as you pay for it from the proceeds.
2. Use rent/hire approach – There are many companies that rent out used heavy equipment. For example Fulcrum Consult Ltd, BEMUGA Forwarders, BMK, and many others. The main feature here is that the equipment is billed on an hourly basis, so efficiency and speed must be of essence here. It also needs liquid cash to meet such daily payments.
3. Get an equity partner(s) – You may also decide to bring on board a financially fit partner(s) and offer a stake to them in return. You will be able to grow without any financial pressures.

2. Highly regulated – There is a high degree of government regulation in the sector given the commercialization of the industry and overexploitation that leads to environmental degradation. NEMA regulates the environmental side of the sector while the Mining Act and Regulations under the Ministry of Energy and Mineral Resources handles the policy and licensing side.

Many companies have fallen prey and taken to court by NEMA for flouting environmental standards while mining sand. DMW Uganda Limited which was awarded over UGX180Bn ($49Mn) was in court over cancelled licence by NEMA. Expect such saga in the sector. Expect a lot of licence fees levies and penalties.

Most of the time, cases are about expired licences or mining without one. Others are that, companies over mine, creating a lot of pits and yet as per regulation the pits are supposed to be filled after removing the sand. The companies also go beyond the required depth of three (3) meters – going up to twelve (12) meters, yet unacceptable. They’re also not supposed to mine sand in an area twenty (20) meters from the road.

Researched thinking tips to counter the problem

1. Just comply with the regulations after obtaining your mining licence.

3. Fluctuating fuel prices – In a sector involving heavy use of fuel driven equipment and frequently moving vehicles, you can never say with certainty that fuel prices will remain static for a given period. Critical to operations is the fuel cost and a big factor in driving most sectors in the economy since no alternative or renewable energy sources have been fully exploited in Uganda. Drivers also have a habit of stealing or siphon fuel.

Researched thinking tips to counter the problem

1. Obtain fixed rate supply contracts – Many transport companies do this. They enter into fuel supply contracts whereby they either get supplied with fuel at the site (using tankers) or drive to the petrol stations to refuel at a fixed price to avoid being hit by fluctuations. It also reduces cases of adulterated fuel.
2. Have fuel reserves – Sometimes while in the course of mining operations or sand ferrying, companies may be hit by an unexpected price hike and this can eat in the revenues. Having reservoirs for bulk storage for rainy days, say for the next six (6) months. However, this requires monitoring and foreseeing trends in the fuel industry.
3. Use fleet fuel sensors/monitors – Install fuel consumption sensors on the tanks of the vehicle and equipment. This helps you to monitor fuel levels and detect suspicious cases of theft while off-site. You can get these from FMS, Tracker Uganda, 3D Services, V-Tracking Uganda, etc.

4. Stiff competition – There is a lot of competition from both local and foreign companies especially as far as ownership of mining areas is concerned, given the demand for the product. Don’t enter the sector without enough research. You will find other companies able to mine and supply more tons than you can, given their financial backing, high-tech equipment, ready contracts and that easily manoeuvre through the policy and regulation. You should also be ready for legal battles, suits and litigations with government bodies.

Researched thinking tips to counter the problem

1. Fulfill the legal and regulatory requirements – Just endeavour to avoid legal issues that your competitors are involved in. That way, you will be a step ahead. This is because some court orders may stop you from mining temporarily yet you have projects to supply to. That is revenue lost.
2. Supply quality sand and on time – Be able to differentiate between good and bad sand early enough before supply. From research, good sand should not form lumps when held and squeezed in your palm. It should disentangle. If it does not show such features, then it has mud in it. This affects the price to be charged and trust building.

5. Mechanical costs (on repair & maintenance) – Just like any other machinery operations, there are common cases of equipment and vehicles breaking down in the course of work thereby costing the business money. Also such breakdowns may occur due to overworking the equipment (beyond manufacturer’s recommended hours).

Researched thinking tips to counter the problem

1. Enter into fixed rate repair contracts – For example you can decided to agree with a reputable garage on terms and conditions that they shall be handling the repairs of the equipment and vehicles at a stated rate or fee per month. This wards off unscrupulous mechanics who you find here and there hence less unnecessary costs in repair activities.
2. Hire a mechanic – Get a mechanic and put him on a payroll, because he will be having full time not occasional work. This mechanic should have the skills and experience to work on the said equipment and vehicles.
3. Sign up with a spares supplier – Spares for heavy equipment and vehicles maybe hard to source, bulky and expensive. Getting into a suppler contract around town is advantageous since it reduces lead time. This also creates trust and you can easily return the parts. Whenever you need a part, you only send your mechanic to go and pick it and replace.

6. Heavily reliant on cash flow – Don’t start out if you have little working capital (liquid cash), you will end up getting a loan or credit. If you get a collateral backed loan, you might get stuck in the mud like a goat due to the many activities needed for financing like severe vehicle repairs, adhoc fuel needs and informal penalties (bribes), traffic police fines, Uganda National Roads Authority (UNRA) road tolls, etc.

For example, UNRA will charge you $10 for a single way special load permit and $20 for multi-trip. You are also charged $20 to get authorization for a special purpose vehicle. If you don’t have enough cash to meet all these expenses on top of others, you may not survive in the sector.

Researched thinking tips to counter the problem

1. Have an equity partner – This may enable the company have some initial working capital, cash cushion for emergency spending. Some experienced firms go for performance bonds from banks so as to have some cash for operations. If the company has been operating for some years, it can utilize finance sources stipulated up there in point (1).

The Thumbs Up (what to be happy about)

1. Ready market (and still growing) – Sand has ever-ready market in (and outside) Uganda. This is because of the fast growing real estate sector where houses are being erected for the urban poor, middle income earners/corporates and the super-rich (who also tend to own most properties).

According to Uganda Bureau of Statistics (UBOS), Uganda has a housing deficit of more than twenty one (21) million units. This deficit is almost growing at a rate of 200,000 units per annum. Last year in June, Uganda’s total mortgage portfolio rose by roughly ten (10) percent.

When I did some research, I discovered that a 2Ton Elf truck of sand goes for UGX120,000 ($33) – UGX150,000 ($41); UGX220,000 ($60) – UGX250,000 ($68) for a 4Ton Isuzu Forward and UGX400,000 ($108) – UGX500,000 ($135) for a huge 10Ton Isuzu or Fuso tipper (10 tyre).

For the ‘big boys’ HOWO SinoTruk, a 20Ton truck of sand goes for about UGX800,000 ($216) – 1Mn ($270), UGX1.3Mn ($351) – 1.5Mn ($405) for a 35Ton truck and UGX2Mn ($541) plus for a 45Ton one. Most of the sand is picked by smaller trucks from collection centres in Gayaza, Kiwatule, Najjeera, Mukono, Lukaya, Mpigi, etc.

More sand is needed to pour more concrete for houses, road projects (Jinja Express Highway, Northern By-pass, Mpigi road works, etc. The China man also needs sand from us to make glass and construction since their deposits have been dwindling. China alone has used more sand in the last ten (10) years than U.S.A did in the entire twentieth (20^th) century.

2. Improved road transport network – Most roads that lead to the sand mining areas or away from them are very good, tarmacked and improved. For example the Masaka-Kampala highway, Katosi-Mukono road, Ggaba-Kampala road, etc. The number of roads tarmacked since the late 1990s has increased, with additions of by-passes. UNRA has done tremendous work and indeed the number of trucks and other vehicles has increased on our roads. Out total road network is estimated at 129,469Km and about 310Km are to be added.

3. Fair return on investment (ROI) – In the profitability analysis, I used real market figures or data and a few sector estimates. So with initial capital outlay of UGX1.2Bn ($315,600) to have a used CAT 324DL excavator, two (2) used 20Ton HOWO SinoTruks 336HP model and working capital of about UGX273Mn ($73,850) for six (6) months runway, you will be able to make about UGX120Mn ($32,750) as profit after 30% corporate tax.

This is after you have made more than UGX496Mn ($134,000) in turnover and deducting about 10% operational losses then fuel costs, mechanical expenses, equipment operators’ salaries and their welfare, a total of UGX270Mn ($73,850) or more.

With that provided, you might see a return on investment (ROI) of about ten percent (10%) or more. This is fair in the sector. Because, for example our sand deposits, exploitable for up to twenty (20) years, by the fifth (5^th) year you will have recouped the full investment.

Equity Investment Opportunity: Let’s Invest Some Money

Here is an opportunity for you to invest in sand mining in the area of Bukakata-Masaka, South-Western Uganda. The land is comprised of over four hundred (400) acres of sand deposits; likely to last for fifteen (15) to twenty (20) years once mining commences. Think of it in terms of two hundred (200) trucks of forty (40) tons each, to make roughly eight thousand (8,000) tons per week. Quite a lot, right?

The incorporation of the company is in progress, comprising two (2) partners (may not be enough) and they are inviting one extra person as an equity partner, to provide long term financing and be able to allow the company grow organically. Be ready for at least a good stake in the company.

If you feel this opportunity is for you or a person you know, please copy the article link and share with them, OR contact me on WhatsApp +256789962775 for more. You can still leave an email in the ‘Contact Me’ page.

Let’s make some money!

NB: This article also appeared on Medium by the same author. Click here

About the Writer

Julius Masaba is a private investment researcher and business consultant. He’s also the Business Development Lead at Ablestate, https://www.theablestate.com/  and a WordPress writer/blogger on startups, entrepreneurship, business and finance. He loves tech. Visit: https://consultmasaba.com/