Thank you for standing by. This is the conference operator. Welcome to the Torex Gold Resources Inc. Third Quarter 2019 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Dan Rollins, Vice President, Corporate Development and Investor Relations. Please go ahead, Mr. Rollins.
Thank you, operator. Good morning, everyone. On behalf of the Torex team, welcome to our third quarter 2019 conference call. Before we begin the presentation, please note that certain statements to be made today by the management team may contain forward-looking information. Please refer to the detailed cautionary note in today's MD&A. This morning, we have in the room Fred Stanford, President and CEO, Steve Thomas, CFO, and Jody Kuzenko, COO. Following the presentation, they will be available for the question and answer period. This conference call is being webcast and will be available for replay on our website. This morning's press release and the accompanying financial statements and MD&A are posted on our website and have been filed on SEDAR. Also, please note that all amounts mentioned in this call are U.S. dollars, unless otherwise stated. I'll now turn the call over to Fred.
Thank you, Dan, and welcome to all on the line. We will follow the same pattern on this call as we did in Q2. Jody Kuzenko, in the COO role, will handle the operations portion of the call. Steve Thomas, in the CFO role, will follow with a financial highlights overview of the quarter. Before turning the floor over to Jody, I would like to reiterate that we are well on track to deliver annual production and costs within the guidance range. After Jody and Steve have provided their updates, I will close with comments on the succession plans announced yesterday evening. I will also provide an update on Muckahi and a comment on the timing of exploration updates. I will now turn the floor over to Jody for an overview of operations during the quarter.
Thank you, Fred, and good morning to all on the line. I'm pleased to report that it has been another record-breaking quarter for the operations team in two fundamental areas, gold production and safety. On production, record ounces were delivered. 138,000 ounces placed us at 21% higher than the previous record set just last quarter and positions us nicely to pin guidance for the year. On safety, our lost time injury frequency remains at an all-time low of 0.79 over 1 million hours, and as of today, we are on a record run of 190 lost time injury-free days, ensuring that our people get home safely to their families at the end of every shift.
As important as the absolute outcomes, which we are all very proud of, is that we have good reason to believe that we can replicate this performance. While it won't ever be perfect or without incident, and every quarter won't be a record-breaker, the approach we have taken here, the how we did this, is something to note. It's important because we think it will stand us in good stead for delivering stable and consistent results over time. I will provide more specifics as I go through the update, but in general terms, we are placing the right people in the right roles, working our way down into the organization. We are identifying and prioritizing problems and then addressing them at the level of root cause, so we are not repeatedly solving the same problems.
We are making detailed plans, optimization plans, maintenance plans, execution plans, and following them systematically. We are using facts, data, and science to inform decision-making, and we are doing all of this as one team, all with a view to completing our transition out of ramp-up and stop-start into maturity and becoming a highly reliable operating unit. Now on to some specifics. On ESG, I discussed our safety performance in the opening, no lost time injuries in the quarter. On the environmental front, we reported out last quarter that we had a spill of processed water into the natural environment. By way of update, all action items coming out of the internal investigation are completed. Three key ones being first, the valving configuration on the process water tank has been changed.
Second, additional containment has been designed and constructed. Third, we have started the program to systematically drain and clean one tank in the leach circuit per month. It is our commitment that an incident like this one won't happen again. Turning to production. Performance out of the mines continues as planned. The open pits are reconciling nicely on grade to our resource modeling. The underground continues to track above plan this quarter with rates at 1,100 tons per day. Coming out of Q2, I said that we were through the thickest part of the ore body. You could expect to see rates returning to the 850 ton per day range. Well, my team decided to prove me wrong.
As our knowledge of the ore body is improving, we are confirming the geological and structural trends. We're updating the modeling as we mine and undertake infill drilling. We continue to push hard on efficiencies. We now expect to maintain rates in the 1,100 tons per day range through Q4 and into Q1 of 2020. In terms of the process plant, SAG throughput averaged 12,380 tons per day, up from 11,670 last quarter. SAG availability also increased from 84% in Q2 to 89% in Q3. In my commentary last quarter, I reported out on a number of initiatives we had in play to deliver on these results. Changing out maintenance contractors, augmenting our QC program on contractor performed work, developing and executing on predictive maintenance plans for critical equipment.
I'm pleased to say that we are delivering on those initiatives. Given that we are not yet consistently performing at the 13,000 tons per day target, we have identified two additional areas for improvement. One is programming and operating the SAG and automatic, using different logic to control for power, speed, pressure, and percent solids. Two, we rented and placed two portable crushers to trial pre-crushing. The objective being to blend 10%-15% of plant feed with high-grade ore crushed under 20 millimeters. Both of those trials started in September. We averaged 13,500 tons per day for the month. When we factor in routine maintenance days, it is unlikely that we will be able to achieve that level every month. Both trials appear to be supporting the incremental gains on throughput that we are looking for.
Apart from throughput, recoveries remained stable in the quarter. We picked up a percentage point over last quarter, closing out Q3 at 89% versus our design rate of 87. We had an excellent September through the SART plant as well. As planned, the agitators in the neutralization tanks were changed out in the month of August, as we were looking to address the root cause of our scaling issues. We came back up in September, consistently hitting flow rates above 500 cubic meters per hour, design being at 400, and operating at design parameters on both copper recovery and cyanide regeneration. While the issue of soluble copper is being addressed with SART up to speed, the rate of cyanide consumption is elevated over Q2 owing to the presence of soluble iron in the feed. Our analysis to date shows the following.
One, that the sources of the highest concentrations of iron are from Sub-Sill and El Limón Sur. Two, approximately 70% of our cyanide consumption at this time is attributable to soluble iron. Three, that iron in solution increased from 397 parts per million in Q2 to 676 parts per million in Q3. Correspondingly, cyanide consumption went from 2.7 kilograms per ton in Q2 to 4.05 kilograms per ton in Q3. This has an obvious impact on our cash costs. While total cash costs went in the right direction, decreasing from $606 in Q2 to $561 in Q3, processing costs went in the wrong direction, increasing from $28 per ton in Q2 to $32 per ton in Q3.
We are currently trialing some methods to oxidize the iron in the first tanks of the leach circuit and formulating a broader action plan to address this emerging issue, including modeling different scenarios, all with a view to maximizing cash flow. I look forward to reporting out on this in Q4. All in, a pivotal quarter for the operations, and we are all working hard to deliver more of the same. I'll now turn the floor back over to Fred.
Thank you, Jody. Steve, can you please take us through the highlights of the financial results?
Thank you, Fred, and good morning, everyone. Let's start with the headline. Q3 was a record-breaking quarter for Torex Gold in both operational and financial performance. This ensures that the company is well-positioned to deliver on its production targets and has the financial strength to preferentially manage our debt and finance new investment opportunities in our growth projects for Q4 and into 2020. Specifically for Q3, we have a stronger balance sheet, significant cash on hand, debt reduced above scheduled payments, strong earnings, and as a result, we'll pay current income tax for the first time. I will touch on each of these aspects briefly. Let's begin with Q3's record production. We generated $121 million of cash from operations, which along with reclassification of $32 million of restricted cash, leaves us with $168 million of cash on hand.
This cash increase underpins our positive working capital balance of $117 million and enabled the company to accelerate repayment of $20 million of the drawn revolver and pay a further $11 million in October to terminate the equipment lease early. This saves interest and streamlines debt on the balance sheet. At the quarter end, the company had $250 million outstanding under the credit agreement and a net debt position of $98.5 million. This balance, compared to the year-to-date EBITDA of $228 million, again signals the financial strength of the business. At current projections and assuming only $1,350 per ounce in gold in 2020, current forecasts show the company turning net debt positive in Q1, prior to the tax payouts in March, and then returning net positive in Q2.
The growth in cash reflects record production of 138,000 ounces in Q3 and a cash margin of $917 per ounce compared to Q2's $708 per ounce, a 30% increase. Reflecting both higher gold prices and furthermore, the increasing profitability of the operation as it moves towards its full potential. Now turning briefly to our balance sheet. We invested a further $12 million across our growth projects of Media Luna, Sub-Sill, El Limón Deep and Muckahi in the third quarter, and a further $9 million was invested in sustaining capital, of which $5 million is attributable to deferred stripping activities in line with plan and guidance. The increase in inventory to $123 million is largely explained by our ore stockpile balance, which is 1.3 million tons at an average grade of 1.81 grams per ton, compared to 1.1 million tons at 2 grams per ton in Q2.
This growth reflects mining rates staying ahead of processing rates and the grade change reflecting the targeted approach of preferentially feeding ore to be processed. With this practice, we expect the average grade of the stockpile to be lower in Q4, which would likely lead to a partial impairment in that quarter. Moving now to the highlights of the company's cost of operations. With both record high production and sales in Q3, all-in sustaining costs of $675 per ounce is at a record low, and total cash costs of $561 per ounce is the lowest level since 2016. This performance brings our year-to-date numbers for TCC and AISC to $620 per ounce and $820 per ounce respectively, which is in line with our guidance range. Impacting both TCC and AISC is an increase in site-based profit share plan reflecting our increased profitability.
Per the issue Jody noted, we continue to see cyanide consumption at higher levels and as a result, reagent costs above plan. Finally, turning to earnings. Income before tax of $59 million compares to $23 million in Q2. After current and deferred tax of $32 million, this results in net income of $27 million or $0.32 per share compared to $0.12 per share in Q2. During Q3, the company utilized its Mexican tax loss pools, which gives rise to income tax being payable for the first time. Although it is noted our effective rate of tax has remained consistent in Q3 with previous quarters and the year-end 2018. For the three months ended 30th of September, the income tax expense is $22 million and the 7.5% mining tax is $10.4 million, with both taxes substantially payable in March 2020.
For adjusted earnings, Q3 has $31 million or $0.36 per share compared with $0.10 in Q2. In closing, Q3 has seen spectacular operational performance and a significant strengthening of the company's treasury position, which leaves us well positioned for the future to both deliver in line with guidance, meet the capital investment programs in Q4 and 2020, and pursue other options to manage debt and further strengthen the balance sheet. As per current projections, assuming only $1,350 per ounce for gold, the company turning net debt positive early next year. Thank you for listening. With that, I will turn the mic back to Fred.
Thank you, Steve. Just a few more comments before opening the floor for questions. Succession planning has been underway for quite some time. I have been in the CEO role for 10 years, which makes me a bit long in the tooth. At some point, it is time for fresh perspective and energy to come into the role. Jody has demonstrated both internally and externally that she is ready to bring the capability, energy, and perspective needed to lead the company for the next 10 years. On the flip side, the board doesn't want me to leave and compete with Torex on Muckahi. They would rather see Muckahi develop solely within Torex. They also want me to stay actively involved in the design and build of Media Luna. The planned changes in organizational design seem like an elegant way to meet the interests of all.
Investors get an excellent long-term leader with Jody. She will continue to build the operating and social culture that has made us successful. There will be a seamless transition from me to her. From the executive chair role, I will stay deeply involved in the design and build of Media Luna and will mentor Jody through that process. On the Muckahi front, we expect it to work. When the market figures that out, there could be a rush to attempt to copy the equipment. We will start now to wrap the technology in the services that will maintain our competitive advantage in the event that the equipment is copied. The services will take advantage of our unique social processes and will be far harder to copy than the equipment itself. From the executive chair role, I will lead the development of these services.
The board will incent me to stay and do this work within Torex. I am pleased to see the potential value of Muckahi accrue to Torex shareholders, many of whom have been very supportive of our previous innovations. Their confidence turned out to be well-placed as those innovations were successful. These organizational changes will take place at the 2020 annual general meeting, eight months from now. We have lots of time to get the details sorted out. Related to succession planning, our executive team is back up to full strength. Barry Murphy has joined us as VP, Engineering and will lead the technical functions, including the feasibility study for Media Luna, which will start early in 2020. Bernie Loyer, our VP, Projects, was leading the trade-off studies for Media Luna, as well as leading the equipment development for Muckahi.
He has handed off the trade-off study work to Barry and now will direct his focus to standardizing Muckahi machine design and assembly processes. Jon Gilligan also recently joined the team in the role of VP automated mine design. Jon will be focused on creating the design principles that result in an optimized and highly efficient Muckahi mine. Many traditional mine design principles will not apply in a Muckahi mine. We intend to be out in front of the competition by getting design and other services figured out well before anyone else joins the fray. Continuing with the Muckahi update. In the field, we'll be blasting our first longhole open stope in November and trialing the mucking process with a slusher. This will be a meaningful test of the Muckahi production system, including the ability to blast to the design degree of fragmentation.
We have completed the initial phase of testing the Muckahi system for tunneling. We have demonstrated that the monorail-based equipment can drill, blast, and install ground support on the level and on a 30-degree down ramp. We have also demonstrated that the slusher is an effective tool to clear the muck from the face in a 30-degree down ramp. Next up is to test the conveyors that remove the muck completely from the heading. The trimming conveyor for level tunneling is currently being commissioned at the manufacturer's site. The steep ramp conveyor is currently being manufactured and will be ready for testing in Q2 of 2020. In the meantime, we have committed the ELD deposit for the testing of the Muckahi mining system as a system. Over the next few quarters, we will shift from testing components to testing how the components work together as an integrated whole.
The next steep ramp will be collared in November, and the steep ramp conveyor will go into that ramp when it arrives in Q2. On the exploration front, the exploration team at Media Luna has done an excellent job with their directional diamond drilling program. They completed the Media Luna infill drill program ahead of schedule. The resultant resource estimate will be completed before year-end. The resources and the measured and indicated confidence class of this resource will form the basis for the feasibility study that will start in early 2020. It is worth noting that only 25% of the previous resource has been upgraded to the measured and indicated confidence class. This means that the feasibility study will only contain 25% of the total resource. While the PEA was based on 100% of the known resource. By definition, the mine life will be shorter than in the PEA.
We will drill to upgrade the confidence of the rest of the resource from underground in the future. From underground, the holes are expected to be shorter and much cheaper to drill. In Q4, we also expect to publish the results of exploration drilling at El Limón Deep, ELD, followed later in the quarter by an update on Sub-Sill exploration . I'll now turn the floor over to the operator to coordinate any questions from call participants.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one 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 star then two. Once again, to join the question queue, please press star then one now. Our first question comes from Bryce Adams of CIBC.
Good morning, Fred and team. Thanks for taking my questions. Am I coming through?
Good morning, Bryce.
I'm there? Okay, good. First one on the tax pools. I realize that they're backward-looking now, but just for my understanding, were they depleted early in the quarter or later in the quarter? What was the working mechanisms with those tax pools?
Yeah, Bryce, it's Steve here. Good morning. The tax pools were depleted roughly halfway through the quarter, so in August.
Okay. I got stung on those a little bit. That explains it.
Thanks
2019 guidance, 430,000 ounces ±7%. It's actually a pretty broad range. Now that we're nine months into the year, did you consider refining 2019 production and cost guidance?
Yeah, we considered it, but it really would have meant just moving up the bottom end of the range. We just decided at the end of the day to leave it where it was. Yeah. We'll leave it at that.
Okay. Fair to say upper end of guidance is where you're targeting now?
I think we'd be comfortable with that.
Your maiden long hole blast. Just wondering if you can add some color around the parameters for that blast. How many rings would you be taking? How many tons would be blasted? What's the stope dimensions? Maybe even the drill string that you're using, just given the fragmentation is so important.
I don't have the exact number of tons in front of me. The critical measure is that the stope height is 20 meters. It's not a long stope, and this ore body doesn't have long stopes, which will affect the accuracy of the drilling. That's probably the critical measure. I believe it's using 4-inch drill holes, and we are drilling a lot of holes.
Yep. That 20-meter height, is that floor to floor?
That's floor to floor.
Okay. All right, well, good luck with that blast. We'll be looking forward to results. Thanks for taking my questions today.
Thank you, Bryce.
Once again, if you'd like to join the question queue, please press star then one. This concludes the question and answer session. I would like to turn the conference back over to the presenters for any closing remarks.
Well, thanks all for the questions. Bryce, particular thanks to you. That was our first question of 2019, so we're glad we got one. In conclusion, Torex has lots of exciting catalysts in play for the near, medium, and longer term. ELG is a beautiful foundational asset. The team is on track to deliver on the potential of that asset, the Media Luna growth project, and to deliver on the potential that Muckahi holds as a strategic and industry-disruptive technology. We look forward to the next call to report our Q4 results. In signing off, I hope that you all have a wonderful day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.