Thank you for standing by. This is the conference operator. Welcome to the Torex Gold Resources 4th Quarter and Year End 2018 Results Conference Call and Webcast. 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.
I would now like to turn the conference over to Gabriela Sanchez, Vice President, Investor Relations. Please go ahead.
Thank you, Ariel, and good morning, everyone. On behalf of the Torex team, welcome to our year end and Q4 2018 conference call. Before we begin the presentation, please note certain statements to be made today by management team may contain forward looking information, So please refer to the detailed cautionary note in today's MD and A. We have in the room Fred Stanford, President and CEO Stephen Thomas, CFO and Jody Kuchenko, 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 company's financial statements and MD and 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 will now turn the call over to Fred.
Thank you, Gabriela, and welcome to all on the line. I'll start with an update on safety and environmental protection. There was one lost time injury in Q4, a broken finger and a pinching injury on a diamond drill. For the year, the lost time injury frequency per 1,000,000 hours worked was low at just less than 1. This is well below the average for mines in Ontario which was more than 2 injuries per 1000000 hours worked.
There were no reportable environmental incidents in the quarter or in the year. In Q4, we exited the rainy season and went from managing mud to managing dust. Given that a failed tailings dam recently resulted in a tragedy, I'll provide a recap of our tailings disposal system. For context, we operate within 100 kilometers of the Pacific Coast. So by definition it is a seismic area.
We are also right beside a significant river. We wanted to reduce the risk to that river to as close to 0 as possible. To do that, we chose to implement a system called dry stack tailings disposal. For this system, we built and operate what we understand to be the largest high pressure tailings filtration plant in the world. Water is squeezed out of the tailings to a level of about 18% moisture and then conveyed to the tailings disposal area, spread and compacted.
This technique, though expensive, significantly reduces the risk of a failure affecting the river. In effect, there is not a dam that holds back the tailings. The tailings are compacted into place. In the event of a seismic event that liquefied the compacted tailings, there is a large rock bulkhead in place to prevent such tailings from moving to the river. It is an effective solution for our circumstances.
This decision and others like it have led to us recently been given a prestigious award from the Alliance for Socially Responsible Business in Mexico. The award is focused on providing quality of life for business ethics and values, for community relationships, and for environmental responsibility. And we're very proud of the team in Toronto and in Mexico for the receipt of that award. Moving to open pit mining operations, mines are keeping ahead of the processing plants. When mining rates exceed processing rates, lower grade tons are sent to the stockpile.
2019 is the year in the mine life with the highest mining rate as measured by total tons per day. The team has prepared accordingly and is delivering the planned tonnage. Underground mining operations, the sub sill operations achieved the planned run rate of 8 50 tons per day in December. This was achieved in the spite of a failure by some suppliers to live up to their equipment delivery commitments. All equipment is now received and the final tie ins will be completed in this quarter.
Underground production continued at 8 50 tons per day in January. It may dip a bit in February March until the final infrastructure tie ins are complete. City state production at 8 50 tons per day is expected after these tie ins are completed. An underground resource estimate is being prepared for the ELD mineralization. A reserve calculation will follow after mining plans are finalized.
This year diamond drilling will continue in the ELD and the sub sill zones with the purpose of extending and upgrading known mineralization. At some time in the future, probably not this year, we will also test for the down dip extension of the Juarez deposit. Turning to processing operations, processing plant averaged 13,000 tons per day in Q4. The midpoint of guidance for 2019 is at 13,000 tonnes per day at reserve grades. We could invest more capital, dollars approximately $7,000,000 to close the last 7% gap to design levels of 14,000 tonnes per day.
This CapEx would divert the crushed pebbles to the ball mill rather than back into the SAG. However, given the 6 year open pit mine life and the softness of future potential underground ores from Idialuna, this investment is not seen as prudent. It would take a year to implement and the extra capacity would not be needed post open pit mine life. We will continue to seek incremental improvements through changes to operating and maintenance practices. If we don't get to 14,000 tons per day, the consequences are minimal.
A year of operating at 13,000 tonnes per day as 1 month to mine life. With a comparable delay in investment in Media Luna. We will continue the optimization efforts, but we'll focus more on cost containment and recovers than increasing throughput. Recoveries throughout the year vary between 85% 90% depending on ore type and operating circumstances. For the year, recoveries average right on the design level of 87%.
The start plant is up and running as per design, soluble copper grades in the ore are variable and the start plant throughput varies accordingly. Media Luna, the infill drill program continues on plan. The purpose is to reduce the drill spacing from a 100 meter grid to a 35 meter grid. Results have been as expected with the geological model built from the 100 meter grid being an excellent predictor results on the 35 meter grid. Six rigs are operating with each rig intersecting an average of 2 targets per month.
There are 175 targets in the program with 115 remaining at the beginning of 2019. The program is expected to be complete by year end and will furnish the geological information required for a feasibility study. In preparation for a feasibility study, final trade off studies are being conducted so as to enable a focused effort once the feasibility study starts. Turning to the Muckahi mining system, there are 4 machines being manufactured to test the Muckahi mining system. The test will be conducted in the ELD zone of the ELG underground mine in Mexico.
The objective is to prove up the major aspects of the system in 2019. The 4 major aspects to be tested in 2019 are the ability to drive a flat tunnel utilizing monorail based equipment, the ability to drive a 30 degree decline tunnel using the same monorail based equipment, to blast a long hole open stope and achieve fragmentation of 95% passing minus 400 millimeters, and the ability to muck out a long hole open stope with a slusher instead of a load hole dump machine. The first machine, the rock drill or jumbo is now on-site and is expected to be breaking rock in the next couple of months. The other machines are being manufactured now with the next one expected to ship within the next 4 to 6 weeks. As machines arrive on-site, they will be integrated into the test program.
Training for operators will start in the next couple of weeks. At the BMO conference during our presentation slot, we plan to show videos that illustrate how Muckahi would work to materially reduce CapEx, OpEx and build schedule. We hope that you can attend. 2019 promises to be a big year for Torex. We anticipate setting new record with over 400,000 ounces of gold produced, continuing exploration and infill drilling success, the testing of the Muckahi mining system which has the potential to be an industry changing technology and good old fashioned free cash flow generation from current operations, Exciting times.
The floor will now be turned over to Steve Thomas, our CFO, who will review the financials.
Steve? Thank you, Fred, and good morning, ladies and gentlemen. I'm pleased to be able to present an impressive set of results for Torex for the 3 12 months ended 31 December 2018. Having come out of interrupted operations in Q1, the ramp up has continued since Q2, culminating in robust earnings from operations and cash flows in Q4 and a strong treasury position at the year end. We beat guidance other than for TCC for which we came in within 1 percent of the top end of the cost range, and in Q4 saw the highest tons mined, highest earnings from operations and lowest AISC per ounce in the last 2 years.
The company closed the year with $149,000,000 in cash and a $42,000,000 positive working capital position. For 2018, net cash generated from operating activities was $227,000,000 The company spent $124,000,000 on capital expenditures, of which half represents investment in deferred stripping activities to enable future production. A further $25,000,000 was spent on sustaining capital to maintain operations and over $30,000,000 invested in growth projects of El Limon Deep, Sub Sill, Media Luna and Muckahi. As Fred has indicated, the process plant averaged 13,000 tons per day in Q4, of which an average process grade over the year of 3 grams per ton resulted in 354,000 ounces of gold produced in dore and carbon fines, generating $443,000,000 in revenue. Earnings in Q4 from mine operations at $34,000,000 and a margin of 26 percent compare favorably to full year earnings of $108,000,000 and an average margin for the full year of 24%.
Whereas income before tax at $27,000,000 for Q4 $77,000,000 for the full year is consistent with these earnings and underlying operational performance, the impact of foreign exchange movements on the deferred tax calculation results in differences from quarter to quarter in derived net income and hence earnings per share, and I will expand upon that issue shortly. Turning to the financial results for the Q4, end and full year. The key financial themes for the company are that for 2018, the average realized gold price was $12.61 per ounce, an average realized margin of 6.15 dollars per ounce. For Q4, the average sales price was lower at $12.35 per ounce, but the margin was maintained at $608 per ounce, demonstrating the ongoing cost control measures and efficiencies continue to drive total cash cost per ounce down. Earnings from operations in Q4 at $34,000,000 are at the highest level in the last 10 quarters.
However, as mentioned earlier, the significant impact of the depreciation of the peso by 4 point 6% during the quarter resulted in net income of $1,400,000 in Q4 compared to $24,000,000 in Q3. During Q4, we collected a further $15,000,000 in VAT receipts, bringing the full year collected to $59,000,000 And in addition, we received $8,000,000 in related interest. This means that over 2 thirds of our VAT receivable balance is current, of which 97% is in respect of 2018 transactions. The company remains in compliance with the covenant tests per the term loan agreement, and we were able to meet the additional operating covenant tests for the second half of twenty eighteen. During Q4, we repaid a further $13,000,000 in debt principal on the term loan, bringing the total for the year to 50 $1,000,000 reducing that balance to $250,000,000 payable by June 2022.
Along with interest, commitment fees and payments under the equipment loan and lease, total financing related payments of $81,000,000 were made during 2018. Turning now to unpack the net income of $1,400,000 or $0.02 per share for Q4. As indicated earlier, healthy earnings from operations in Q4 resulted in income before tax of $20,400,000 which is at its highest in the last 2 years. However, as in Q2, the peso depreciated by 4.6% in Q4, resulting in an unrealized deferred tax expense of 11.6 $1,000,000 contributing to the $15,000,000 total deferred tax expense for Q4. For the full year of 2018, the deferred tax expense was $24,400,000 but over that 12 month period, the peso actually appreciated by 0.3%, resulting in a minimal gain of $800,000 in relation to deferred tax.
The significant impact of FX movements on deferred tax calculations arises as the peso denominated tax base assets and liabilities are translated into the U. S. Dollar at the closing rate prevailing at the quarter end. This impact of foreign exchange movements will tend to increase during 2019 as the tax loss pools available to MML, which provide an offset in this calculation, are depleted during the year. It is worth noting that the peso U.
S. Dollar exchange rate of 19.68 at the year end is now at 19.23 and applying this current rate that would reduce the Q4 deferred tax expense by approximately $6,300,000 to $5,300,000 which is equal to a gain of $0.074 earnings per share. As per the initiative adopted in previous quarters, we have incorporated this tax related exchange impact in our Q4 adjusted earnings calculation, resulting in an adjusted net earnings figure of $13,900,000 and an adjusted earnings per share of $0.16 That is up from quarter 3's adjusted net earnings figure of $7,300,000 or $0.09 per share. Now turning to consider the company's liquidity position. Excluding restricted funds of $27,000,000 the company's cash balance at the year end is $122,200,000 versus $121,600,000 at Q3.
Compared to $63,000,000 cash generated from minor operations in Q3, during Q4, we generated $57,000,000 and for 2018, dollars 186,000,000 compared to $92,000,000 in 2017. For the full year, a positive working capital movement of $42,000,000 capital investment of $124,000,000 less the debt principal and interest settlements of $81,000,000 and other net flows resulted in a net increase in cash of $29,000,000 before the bought deal receipt of $48,000,000 In summary, 2018 has been a significant year, ramping up and achieving several operational first. The operation's ability to produce large volumes of ounces in a low cost environment leaves the company in a strong financial position on which we will build and strengthen throughout 2019. Thank you for listening. And with that, I will turn the mic back to Fred.
Thank you, Steve. As mentioned, 2019 promises to be a big year for Torex. Record production is expected, generous free cash flow and a meaningful advance in growth projects that open up meaningful strategic options. I'll now turn over the microphone to the operator for questions.
Thank you. We will now begin the question and answer session. Our first question comes from Josh Wolfson of Desjardins.
Thanks. Just a quick question related to the statements about the January performance. Do you happen to have any more details on what the challenges were that were experienced and I guess how they've been resolved or if they've been resolved?
You're talking about the underground performance, Josh?
There was sort of an indication in the MD and A about the challenging January results of the processing plant and leadership changes that were made there?
Yes. So as you try and ramp up the production processes, you trying to get to that 14,000 tons a day, you change some things. Sometimes they work, sometimes they don't. And we had a couple in January where they didn't. We opened up the grates and to push more feed through the SAG mill and that resulted in some downstream damage to the screening system.
So we had to go back and undo that fix. So those sorts of issues we've been working our way through. And as we evolve the operations from build up to ramp up, as we've done elsewhere, we do occasionally have to make management changes.
Okay. And is it safe to assume no material impact on guidance for 2019 based on that expense?
That is correct.
Okay, thanks. That's it for me.
Thanks, Josh.
Our next question comes from Trevor Turnbull of Scotiabank.
Yes. Fred, I hope you didn't already touch on this, but I may have missed it. You talked about spending some time with Media Luna this year, looking at trade offs before you roll into the full feasibility study. Could you give a little detail on what kind of trade offs you're looking at?
Yes. Thanks, Trevor. They're all material handling trade offs primarily. As with any design, when you have geographic features, you can go over them, on them or through them. And so we're still working through the options on do we go on the river with a barge to move equipment to the site, Do we go over it with a ropeway?
And we're it would be another way to get there. And we're similarly looking at the options for getting backfill material back into the mine. Do we convey it into the bottom of the mine, which is the current PEA design? Or do we take it higher up the mountain to the top and then deal with questions about when we put cement into the line? To put it in the line where we have gravity to help us, do we put it in the line where we have pumps.
So those are some of the trade offs that we're just going to get finalized so that when we do the feasibility study, we're only engineering for 1 as opposed to still sorting out choices, which is really what a pre feasibility does.
And you expect to be able to kind of have that outlined for us sometime later this year before you roll into the fees?
Yes, we won't actually do a pre fees and publish it, but we should be able to talk through what the design final design options are.
Okay, great. That's all I had. Thanks, Fred.
Thanks, Trevor.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Stanford for any closing remarks.
Thank you. In closing, a special thanks to Gabriela Sanchez as she takes a brief career pause. She has been with us since the very beginning and has had a material impact on building the business. I know that she has also been very helpful to many on the call. So we wish her all the best in her next phase.
Thank you, Gabriela.
Thank you.
Thank you all for listening into the call. I hope that you all have a wonderful day.