Good morning, everyone. Welcome to Andean Precious Metals webcast to discuss the company's financial and operating results for the three and nine months ended September 30, 2023. As a reminder, this webcast is being recorded. Your host for today is Trish Moran, Andean's Vice President of Investor Relations. Ms. Moran, please go ahead.
Thank you, and good morning, everyone. Before we get started, I would ask everyone to view slides 2 through 5 of our third quarter presentation to view our cautionary language regarding forward-looking statements, important disclaimers, and statements around historical reserves and resources relating to our recent acquisition of Golden Queen Mining. Our press release is available both on SEDAR+ and on our corporate website, andeanpm.com. With us on today's webcast is Alberto Morales, Andean's Executive Chairman and CEO, Juan Carlos Sandoval, our CFO, Segun Odunuga and , our EVP Finance. Following management's formal remarks, we will then open the call to questions. Now over to Alberto.
Thank you, Trish, and welcome everyone. From the outset of 2023, we've made clear about our objectives for the year, namely, extend the life of mine of our Bolivian operations and grow our company through acquisitions in the Americas. We are now making significant progress on both of these objectives. As mentioned, we've signed new material contracts totaling nearly 1 million tons, including Alta Vista in Q2, and most recently, Paca in Q3, and continue to work to expand even further on this. We are also continuing to make progress, bringing down our G&A expenses, and we closed our first acquisition, Golden Queen Mining. With this acquisition, we now have a turnkey producing asset, the Soledad Mountain Mine, located in Kern County, California. Soledad is a well-established open pit heap leach facility that has been in operation since 2016.
Its historic mineral reserves of 670,000 ounces of gold and 9.4 million ounces of silver, with plenty of opportunities for upside. We did extensive due diligence on this asset and know wherein lies the potential. In terms of pursuing these opportunities, our highest near-term priorities are to establish ore control and reconciliation processes while currently developing a detailed mine plan design, including sequencing and scheduling that encompasses long-range planning. There is also an opportunity to drive operational efficiencies in the near to mid-term. For example, we are phasing out older trucks and replacing them with new vehicles with greater mechanical availability and larger truck beds. We will have four new trucks going into the new year and will continue with our fleet replacement into 2024.
Furthermore, over the short to medium term, we will properly evaluate exploration opportunities to replenish resources and reserves to extend the life of mine beyond 2028. For those investors who may still be on the fence about our acquisition of Golden Queen, I believe the value creation opportunities will start to become clear in the first half of 2024, with the issuance of a new technical report and mine plan and the anticipated growth in production, revenue, and cash flow. We believe the Golden Queen acquisition is a game changer for Andean and sets us on track to reach our mid-tier producer ambition. Let's now address our Bolivian operations. Our Pallacos has been depleting and was set up to run out in 2024. This is not a surprise, and thus we have been transitioning to third-party purchased feed to fill the gap.
As mentioned, since the beginning of the year, we have signed contracts for approximately 1 million tons of material with much higher grade. As we have known for some time, there is a social pressure in COMIBOL to stop mining the Cerro Rico. We agree that protecting the Cerro Rico Mountain in the city of Potosí is very important. In anticipation of this, we have been accelerating our transition by the FDF silver oxide project. As part of our permitting negotiation with COMIBOL, they requested that San Bartolomé professionally suspend mining of its low-grade Pallacos. While we anticipate coming to resolution with COMIBOL shortly, we continue to pivot our Bolivian operations into third-party material processing business that is focused on securing long-term material purchasing contracts, driving margins, and generating cash flow.
To bridge the gap between now and the anticipated start-up of the FDF production in the first half of 2024, we intend to continue with our efforts to increase the purchase of third-party oxides and processing of material from recently signed contracts for the Alta Vista and Paca deposits. Our focus is on procuring long-term contracts. To date, in 2023, it is very important to highlight that our silver equivalent ounces produced from third-party material purchases now represents more than 78% of the total ounces produced in Q3 2023, and 69% for the nine months ended September 30, 2023. Following the completion of the FDF project in the first half of 2024, we are anticipating that production of the FDF and third-party oxide material will more than fully replace low-grade, high-cost tonnage from Pallacos with much better margins.
Civil construction and procurement of the equipment required for the silver recovery projects at the company's FDF is progressing as scheduled. Delivery of the equipment has commenced and is ongoing. Commissioning and commencement of production is targeted for the first half of 2024. The request from COMIBOL to suspend the mining of Pallacos is not a material event for us. To be clear, the mining of Pallacos has been holding our margins due to its high, high cost and low grade. In addition, we also reported in our MD&A for the year-end of 2022, that the resources and reserves associated with Pallacos, based on our production profile, will be fully depleted by first half of 2024 anyway.
Irrespective of COMIBOL's decision, the company has been considering for some time to stop mining Pallacos, and in preparation for that decision, we first built a large stockpile that we continued to mine well into Q4. We also significantly increased our third-party purchases, which are the ones that really drive our margins. There comes a point in time in which stopping the mining of Pallacos would have been the necessary decision anyway, and the company has been preparing for this. Despite increasing our third-party purchases, we are amending the guidance for our Bolivian operations. Based on the first nine months of production at San Bartolomé, and the government's restriction on mining activities at Pallacos during Q3, we are decreasing our full-year 2023 silver production guidance range to between 4.6 and 4.8 million silver equivalent ounces.
Additionally, we're increasing the guidance for all-in sustaining costs to a range of $22.50-$22.90 per silver ounces sold. Driving the increase in all-in sustaining costs is the hardness of third-party purchase outside material, higher third-party purchase volumes, and an increase in the cost of consumables. Our CapEx guidance is unchanged, and the Fines Disposal Facility project is progressing on time and on budget, as we discussed. I would like now to hand things over to Juan Carlos, who will review our financials in more detail.
Thank you, Alberto. Turning now to our operating and financial highlights for the three and nine months ended September 30, 2023, starting on slide 12. Production increased to 1.2 million silver equivalent ounces, taking us to 3.5 million ounces year to date. While we stepped up our material purchases, in fact, 78% of ounces produced this quarter came from third-party feed. It was not enough to fully offset the negative impact of the hard rock that makes it more difficult to process, and governmental restrictions on mining activities at Pallacos deposit going into the year-end. Accordingly, we are decreasing our full year 2023 production guidance to between 4.6 million and 4.8 million silver equivalent ounces.
Tons milled were stable versus Q2 and down 5% compared to the prior year quarter, while average head grade improved both quarter-over-quarter and year-over-year. Approximately 60% of tons milled in the third quarter came from purchased materials with an average head grade of 179 grams per ton. The purchase grade is 2.5 times that of Pallacos, which had an average grade, head grade of 78 grams per ton. We have signed contracts for nearly 1 million tons of new feed, including Alta Vista and Paca, and are focusing on long-term contracts with good volume, grade, and better margins. Our average realized price per ounce in Q3 was $24.34, compared with an average market spot price of $23.57.
We have been able to outperform the average market spot price by closely monitoring the market to mitigate price volatility risk and defend against steep volatility. As you will recall, we have silver collar contracts in place until the end of the year, which have an average put strike price of $23 per ounce and a call strike price of $30 per ounce. The contracts are for 200,000 ounces per month, and we have exercised one of these contracts in Q3. Contracts for 600,000 ounces remain outstanding as of September 30, 2023. Q3 revenue grew to $38.2 million, an increase of 150% and 62% over Q2 2023 and Q2 2023, respectively.
The increase is primarily due to the sale of 540,000 ounces that were delayed in Q2 and sold in Q2 for revenue of $13.3 million. It should be noted that we also had delayed sales in Q3 of approximately 233,000 silver equivalent ounces, which were valued in inventory at $4.6 million. Subsequent to quarter end, we sold these ounces at an average price of $24.46 per ounce, for total revenues of $5.4 million. Tons mined decreased by 17% and 10% quarter-over-quarter and year-over-year, respectively. This decrease resulted in lower mining and haulage costs per ton, from 8.6 to 8.26 per ton in Q2, 2023, to 5.94 in Q3, 2023.
Material purchasing cost and milling and processing cost also decreased quarter-over-quarter. Our key cost per ounce sold metrics were mixed. Compared to Q2, cost of sales and operating cash cost increased, and all-in sustaining cost and all-in cost decreased. Since we stopped using high cost and low-grade Pallacos ore in mid-November, we are taking action to further reduce costs, including a reduction of the San Bartolomé labor force. Our objective is to improve costs as we continue to focus on processing more third-party materials in Bolivia. Moving to our profitability metrics on the next slide. We continue to see improvements in our operations. Quarter-over-quarter, income from mining operations tripled to $6.3 million, gross cash profit rose to $7.3 million, EBITDA increased by 11% to $4.3 million, and adjusted EBITDA increased by 38% to $6.8 million.
Additionally, our gross margin ratio was 19% in Q3 2023. Our free cash flow increased from the previous quarter. And net cash flow from operating activities went from negative net cash in Q2 2023, to positive net cash of $8.7 million in Q3. Moving on to our capital structure. As of September 30, our cash position was $76.8 million. As of the end of the quarter, we had no debt, and working capital was $86.1 million, and we had $88 million in liquid assets. Our mandate is to preserve the strength of our strong cash balance sheet, and we continue to do so even after our acquisition of Golden Queen. This concludes our formal remarks. We will now open the line for questions. Operator?
Thank you. We will now begin the question-and-answer session. To join the question queue, you may press * then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press * then 2. We will pause for a moment as callers join the queue. The first question comes from Justin Chan of SCP Resource Finance. Please go ahead.
Hi, guys. Thanks for taking the call. I guess my first question is on Q4 and then next year. So I guess in terms of ore feed and tons mined in Q4, does that mean you expect... Will there be tons mined from Cachi? Will there be any Pallacos that you're processing? And then I'm just trying to get a sense of, from Q3 to Q4, how the quantities of purchased ore and total ore will move, if you could give me any color on what to expect.
Sure, Justin. Thank you. Yes, for Q4, as we expressed on the remarks, the company built this, a large stockpile that continued to be used and mined throughout, more than half of the month of November, of this Q4. And in addition to that, we're also increasing purchases and looking into other source of feeds that will give us a better margins and profitability that, than what we've been seeing currently from Pallacos. As you will see, from our numbers and production metrics, 78% of the ounces produced comes from about 60% of the feed or the throughput into the mill, and those are the third-party purchases, whereas to the opposite 40% of the feed to the mill, that comes from Pallacos, actually only produce 22% of the ounces.
So that's what's been holding our margins, and certainly, we are intending to to correct that. And while we may not be in a position to continue mining Pallacos, we don't think it's that material, because what we would be looking at is into better margins by applying the third-party ore into the feed. We do have Paca, we do have Alta Vista, we have Cachi, and we have on the pipeline other additional sites that we're looking into it. Like, and the FDF, which will certainly kick in on half of 2024, will continue to give us the softer material for the blending, in addition to that. In the meantime, we're preparing for that.
We have been preparing for that. Justin?
Pardon me, the operator. It seems that Justin's line has dropped, sir.
Once again, if anyone has a question, please press * then 1. Please press * then 1 now. We'll pause for a moment as calls join the queue. As there are no further questions from the phones, this concludes the question and answer session. I would like to turn the conference back over to Alberto Morales for closing remarks.
Thank you, operator. Well, I just want to express that we're very excited about the acquisitions of Golden Queen. We believe that the fruits of it are going to begin to be visible to everyone during the first half of 2024, as we begin to consolidate the numbers of Golden Queen into our financial statement going forward in Q4 and Q1 and Q2 of next year. Also, we are very excited and look forward to a much better 2024 for our San Bartolomé operations. Now that we are looking into including the FDF processing facility, that will drive much better margins. We believe it will drive more better margins into San Bartolomé. And we're also correcting now the fact that the low grade and high cost Pallacos has been holding our margins for quite some time.
So we're looking into correcting that going forward into 2024, and we hope to be showing that to the market as well. In addition, in order to support also our share price, which we're not happy about, I don't think it reflects the true value of our company. We will be filing for the renewal of the NCIB share buyback program, to continue with that as well. With that said, I want to thank everyone for your attendance, and certainly, if you have any questions, feel free to address them to us, and we'll be happy, happily to address them and respond. Thank you very much, and have a nice day.
Pardon me, sir. We do have a question from Justin Chan of SCP Resource Finance.
Oh, he's back, good.
Yes, sir.
Yes, sorry, but-
I'm not sure if I'm on. Yeah, sorry about that. My reception cut. I think I missed just the end of the answer, to be honest, on my question on tons for Q4. Do you expect you'll have similar overall tons and grades or, you know, lower tons? Because there's some stockpiles, but not enough. Could... Just trying to get a sense.
We basically used our stockpile in connection. If your question goes addressed to Pallacos, we did use the stockpile for Pallacos in that sense, and we are expecting to continue with the same average tonnage in connection with third-party purchases. In fact, we're working to try to increase it as we get to the year end. So we're hoping to may be having a slight increase in the third-party purchases tonnage.
Got you, sir. But I guess for you-
Yeah, go ahead, Justin.
Sorry. Sorry, sorry, Alberto. I was just gonna say, so in terms of total tons that you feed through the mill, if your purchase tons are the same or maybe slightly higher and Pallacos are lower because the stockpiles are through, then total tonnage that you process will be lower in Q4. Is that correct?
That is correct. It can be envisioned.
Okay.
That, that-
It'll be lower tonnage at a higher grade.
That is correct. We're basically wanting to see the profitability of that mix. Exactly.
Okay. Okay, thanks. And then for next year, can you give us a sense of what you're expecting in terms of tons from the FDF to be processed and also the CapEx and timing on that?
In connection with the FDF, what we will try to do, Justin, is to try to use the FDF as a blending material for purposes of the metallurgy of the mixes that we're going to be putting in. But by the same token, since it's going to be much lower cost in connection with the operating expenses that it means to use it, we believe that we're gonna be envisioning to use some of it, the amount of which is not yet defined as the mine plan is being prepared. So, we're hoping to be able to be releasing the MRMR shortly, and we will be also focusing on the mine plan to be in a position to better respond more specifically to that question, if you allow us a little bit more time on that.
Okay, okay, understood. And then in terms of the CapEx quantum, is around, say, $15 million-$20 million a reasonable number for CapEx, or is that on the high end? Or, yeah, perhaps could you just give me a sense?
No, I think you're asking for the FDF total CapEx. Is that your question?
Yes , and also, if you can, the timing on it in terms of,
When you...
Our estimate for CapEx was $6.5-$8.5, so we're in the budget, right roughly around the middle of it. As we envisioned, we're looking forward towards commencing production in the first half of next year.
Okay. Thanks. It's very helpful.