Thank you for standing by. This is the conference operator. Welcome to the Torex Gold Resources Inc. 3rd Quarter 2018 Conference Call and Webcast. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, I would now like to turn the conference over to Gabriela Sanchez, Vice President, Investor Relations. Please go ahead.
Thank you, operator, and good morning, everyone. On behalf of the Torex team, welcome to our Q3 2018 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, so please refer to our detailed cautionary note in today's press release. We have in the room Fred Stanford, President and CEO Jason Simpson and Jody Kuchenko, both COOs during this transition period and Stephen Thomas, CFO. 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 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'm pleased to report on what has been an excellent quarter. I'll start with an update on safety and environmental protection. There were no lost time injuries in Q3. The 12 month rolling lost time injury frequency target is 2 per 1000000 hours worked.
The performance over the last 12 months has been better than target at 1.3 lost time injuries per 1000000 hours worked. There were no reportable environmental incidents in the quarter and we are now through the rainy season and water management through the season was well conducted. Turning to open pit mining operations. The mines are keeping ahead of the processing plants. When mining rates exceed processing rates, lower grade tons are sent to the stockpile.
The waste mining rate has increased by more than 2 thirds over the previous quarter, which brought back on plan the year to date quantity of waste stripped. The waste stripping momentum will be maintained in Q4. The overproduction in Q4 will reduce the risk of underproduction in 2019. The cost of overproduction in Q4 could be up to $6,000,000 in sustaining capital that will then not be required in 2019. Turning to underground mining operations.
On certain days, subsoil mining has achieved the full production rate of 8.50 tonnes per day. However, that rate is not sustainable day in and day out until the final ventilation system is installed allowing more workplaces to be mined simultaneously. The ventilation fan supplier has disappointed on delivery schedule and has only just recently shipped the fence. They will be installed when they arrive. Consistent 8 50 tons per day production is expected to be achieved by year end or early in the New Year.
Other underground installation infrastructure infrastilations are complete or nearing completion. The mine has been connected to grid power and the second access to the underground workings is completed. The permanent backfill system is on track for completion by year end. 5 diamond drills are active between Sub Sill and El Limon Deep. We are in the final stages of preparation for a release of drill results for Sub Sill.
A release of results from El Limon Deep should be ready before year end. Turning to processing operations. The processing plant averaged 91% of design levels of 14,000 tonnes per day in Q3 and 95% in October. New daily record throughput of as high as 16,800 tons per day has been achieved, eating 100% of design throughput rates is expected by year end. Gold recovery was 89% in the quarter, more than 2% higher than planned.
We aren't completely sure why this happened. It could be grade related, but the timing of the improvement is correlated with the timing of the start of the SART plant. It could be a positive unintended consequence of the SART plant and one half of the recovery improvement has been credited to the savings from the start plant. More detail on the start plants. At the end of the quarter, the Sart plant was operating at approximately 2 thirds of capacity.
Is it expected to be operating at full capacity by year end? Capacity is measured in liters of processed water treated per hour, scale buildup in some pipes and elsewhere has been a key constraint on achieving full capacity. Now that we know where it builds up, maintenance programs have been implemented to deal with it. Changes are also being made to the descaling agents and some minor piping modifications. At full capacity, the start plant is expected to deliver a $65 per ounce cost reduction as a result of reagent reductions, byproduct credits and recovery improvements.
And in Q3, a $48 per ounce improvement was registered. Turning to Media Luna, the infill drill program continues on plan. The purpose is to reduce the drill spacing from 100 meter grid to a 35 meter grid. Results have been as expected, which means the geological model built for the 100 meter grid has been an excellent predictor of the results for 35 meter grid. Five rigs are operating with each rig intersecting an average of 2 targets per month.
There are 175 targets in the program. 37,000 meters were planned for the year. Success with wedging and directional drilling are indicating that the planned number of targets will be achieved with 5,000 fewer meters of drilling. A PEA for Media Luna with an after tax IRR of 27% was published in the quarter. Subsequent to the PEA publication, additional trade off studies are being conducted with an objective of having them complete before scheduled start of a feasibility study in mid year 2019.
The conceptual Muckahi mining system was introduced to the market in Q3 through the Media Luna PEA and a 4 hour technical session in Toronto. If we can make it work, it has the potential to materially change the underground mining industry and be a competitive advantage for Torex. The system is rapidly advancing from the design stage to the full scale testing of the associated mining machines. The first of these machines is scheduled to ship before year end to our underground operations in Mexico. The remaining three machines are scheduled to ship in Q1 and Q2 of 2019.
Testing is planned for the El Limon Deep area. Test objectives for 2019 are demonstrate high speed tunneling using monorail based equipment on the level and on a 30 degree down ramp, demonstrate that we can achieve long hole open stope fragmentation of 95% passing minus 400 millimeters and demonstrate that we can muck out the stope with a low cost slusher. We will keep you posted as this test unfolds over 2019. The floor will now be turned over to Steve Thomas, our CFO, who will review the financials. Steve?
Thank you, Fred, and good morning, everyone. I am pleased to be able to present our results for the 3 9 months ended 30th September, 2018. Our strong performance in quarter 3 and year to date performance indicates that we are on track to meet all guidance targets. Quarter 3 has seen the mine operating at full capacity for many of its key performance measures in respect of mining activity and processing efficiency. This has culminated in record gold production and total cash costs below $600 per ounce for the quarter, its lowest level since 2016.
The quarter has also seen a significant level of capital investment in deferred stripping. Quarter 3 saw the highest ore and waste tonnage moved in any quarter to date and operating at the tempo required to ready the mine for 2019. The company has also continued to invest in its exciting growth and development projects of Media Luna and SubSeal, whilst completing commissioning of the Saar plant. Turning to the financial results for the Q3 and the year to date. The key financial themes for the company are that for the 9 months year to date, we produced 246,000 ounces in dore and eleven 1,000 ounces in carbon fines, of which a record level of 102,000 ounces were produced in quarter 3.
In Q3, we sold 103,000 ounces and year to date 243,000 ounces, keeping us in line with guidance of 325,000 to 350,000 ounces. Year to date average gold price of $12.72 an ounce has resulted in a year to date average realized margin of $6.17 per ounce. Although in Q3 average sales price decreased to $12.14 the average realized margin increased to $6.24 an ounce through continued cost control measures and efficiencies from increased production rates. Earnings from operations in Q3 at $31,700,000 are strong being $8,000,000 above Q2 and at their highest for a quarter since 2016, reflecting the high level of production $24,000,000 in Q3 compared to the net loss of $12,000,000 in Q2 is driven by a combination of increasing earnings from operations, a reduction in corporate and evaluation expenditure and negative finance costs due to a VAT interest income. Equally significant has been the foreign exchange effect of a 5% strengthening of the peso compared to the U.
S. Dollar, which I will expand upon when discussing earnings. During quarter 3, investment in sustaining capital increased by $34,000,000 $24,000,000 of which represents capitalized deferred stripping and other sustaining capital investment includes $6,000,000 for mobile equipment. In respect of non sustaining capital, we completed and commissioned a SART plant and invested a further $7,000,000 across EOG Sub Sill and Media Luna. Building on the momentum established with SAT in quarter 2, we received a further $25,000,000 in VAT receipts bringing the year to date collected to $44,000,000 This leaves approximately 70% of our back receivable balances current, of which almost 90% is in respect of 2018 transactions.
The company remains in compliance with the covenant test per the term loan agreement and received agreement to temporarily set the 30% reserve tail ratio required at the June 2022 loan maturity date to 27%. During quarter 3, we repaid a further $14,100,000 debt principal on the term loan and year to date have repaid $42,300,000 of debt principal under the term loan, equipment loan and finance lease. Turning now to unpack the net income movement of $36,000,000 between Q2 and Q3. As indicated earlier, improved earnings from operations and reduced corporate and evaluation spend accounts for $10,000,000 of this increase. A further $7,000,000 is attributable to the receipt of VAT interest in respect of historical VAT balances recently settled.
And a further $6,000,000 is attributable to foreign exchange differences arising on the net current assets and derivative contracts. A further $13,000,000 in net income increase reflects the reduction of the deferred tax expense from $14,100,000 in Q2 versus $1,300,000 in Q3. The change in expense arises because the peso weakened by 8% during quarter 2, but strengthened by 5% in quarter 3. The significant impact of FX movements on deferred tax calculations arises as the peso denominated tax base assets and liabilities are translated into U. S.
Dollars at the closing rate prevailing at the quarter end. As per the approach adopted in quarter 2, we have incorporated this tax related foreign exchange impact into our Q3 adjusted earnings calculation. This results in a Q3 adjusted net earnings figure of 7 point $3,000,000 compared to quarter 2's adjusted net earnings figure of $10,600,000 Now turning to consider the company's liquidity position. Excluding restricted funds, the company cash balance at Q3 end is $121,600,000 compared to $91,400,000 at Q2 2018. Compared to $37,000,000 cash generated from mine operations in Q2, during Q3, we generated $63,000,000 from which we funded $40,000,000 in capital $22,000,000 repayment of debt principal and positive working capital movement of $19,500,000 and net VAT collections of 9,400,000 explain the remainder of the movement in the cash balance.
In closing, quarter 3 results have been built on the ramp up undertaken in quarter 2 and the tempo being achieved by the mine operation has enabled strong earnings, continued capital investment and an improved treasury position. Thank you for listening. And with that, I will ask the operator to open the line for questions.
Thank There are no questions at this time. This concludes the question and answer session. I would like to turn the conference back over to Fred Stanford for any closing remarks.
Thank you, operator. We'll credit the absence of questions to a brilliant presentation. In closing, I would like to thank Jason Simpson for his tireless efforts to so successfully get the ELG built and ramped up. We all wish him every success in his new role as CEO of Orla. Would also like to welcome Jody Kozanko to our team as COO.
We expect great things as she leads ELG through the continuous improvement optimization and the development of our growth initiatives. Exciting times for all. Thank you all for listening into the call. I hope that you have a productive day.