Thank you for standing by. This is the conference operator. Welcome to the Torex Gold Resources Inc. Third 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, 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 Gabriela Sanchez, Vice President, Investor Relations. Please go ahead.
Good morning, everyone. On behalf of the Torex team, welcome to our third quarter 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, 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 Kuzenko, both COOs during this transition period, and Steven 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 accompanying financial statements and MD&A are posted on our website and have been filed on SEDAR. Note that all amounts mentioned in this call are US dollars unless otherwise stated.
I will now turn the call over to Fred.
Thank you, Gabriela, welcome to all on the line. I am pleased to report on what has been an excellent quarter. I will 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 two per million hours worked. The performance over the last 12 months has been better than target at 1.3 lost time injuries per million hours worked. There were no reportable environmental incidents in the quarter. We are now through the rainy season, 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 two-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 million in sustaining capital that will then not be required in 2019. Turning to underground mining operations. On certain days, Sub-Sill mining has achieved the full production rate of 850 tons 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 fans. They will be installed when they arrive.
Consistent 850 tons per day production is expected to be achieved by year end or early in the new year. Other underground infrastructure installations 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. Five diamond drills are active between Sub-Sill and El Limón Deep. We are in the final stages of preparation for a release of drill results for Sub-Sill. A release of results from El Limón Deep should be ready before year end. Turning to processing operations. The processing plant averaged 91% of design levels of 14,000 tons per day in Q3 and 95% in October. New daily record throughput of as high as 16,800 tons per day has been achieved. Hitting 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 SART plant. More detail on the SART plant. At the end of the quarter, the SART plant was operating at approximately two-thirds of capacity. It is 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 SART plant is expected to deliver a $65 per ounce cost reduction as a result of reagent reductions, byproduct credits, and recovery improvements. 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 a 35-meter grid. Five rigs are operating, with each rig intersecting an average of two 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 four-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 Limón 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 -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 Steven 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 three and nine months ending 30th of September 2018. Our strong performance in quarter three and year-to-date performance indicates that we are on track to meet all guidance targets. Quarter three 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 three 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 Sub-Sill whilst completing commissioning of the SART plant. Turning to the financial results for the third quarter and the year to date, the key financial themes for the company are that for the nine months year to date, we produced 246,000 ounces in Doré and 11,000 ounces in carbon fines, of which a record level of 102,000 ounces were produced in quarter three. In Q3, we sold 103,000 ounces, and year to date, 243,000 ounces, keeping us in line with guidance of 325,000-350,000 ounces. Year to date average gold price of $1,272 an ounce has resulted in a year-to-date average realized margin of $617 per ounce.
Although in Q3, average sales price decreased to $1,214, the average realized margin increased to $624 an ounce through continued cost control measures and efficiencies from increased production rates. Earnings from operations in Q3 at $31.7 million are strong, being $8 million above Q2 and at their highest for a quarter since 2016, reflecting the high level of production and continued focus on reducing total cash cost per ounce. The net income of $24 million in Q3 compared to the net loss of $12 million 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 US dollar, which I will expand upon when discussing earnings.
During Quarter Three, investment in sustaining capital increased by $34 million, $24 million of which represents capitalized deferred stripping, and other sustaining capital investment includes $6 million for mobile equipment. In respect of non-sustaining capital, we completed and commissioned the SART plant and invested a further $7 million across ELG Sub-Sill and Media Luna. Building on the momentum established with SAT in Quarter Two, we received a further $25 million in VAT receipts, bringing the year-to-date collected to $44 million. This leaves approximately 70% of our VAT receivable balance as 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 Three, we repaid a further $14.1 million of debt principal on the term loan, and year-to-date have repaid $42.3 million of debt principal under the term loan, equipment loan, and finance lease. Turning now to unpack the net income movement of $36 million between Q2 and Q3. As indicated earlier, improved earnings from operations and reduced corporate and evaluation spend accounts for $10 million of this increase. A further $7 million is attributable to the receipt of VAT interest in respect of historical VAT balances recently settled. A further $6 million is attributable to foreign exchange differences arising on the net current assets and derivative contracts. A further $13 million in net income increase reflects the reduction of the deferred tax expense from $14.1 million in Q2 versus $1.3 million in Q3.
The change in expense arises because the peso weakened by 8% during Quarter Two, but strengthened by 5% in Quarter Three. The significant impact of FX movements on deferred tax calculations arises as the peso-denominated tax base assets and liabilities are translated into US dollars at the closing rate prevailing at the quarter end. As per the approach adopted in Quarter Two, 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 $7.3 million compared to Quarter Two's adjusted net earnings figure of $10.6 million. Now turning to consider the company's liquidity position. Excluding restricted funds, the company cash balance at Q3 end is $121.6 million, compared to $91.4 million at Q2 2018.
Compared to $37 million cash generated from mine operations in Q2, during Q3, we generated $63 million, from which we funded 40 million in capital and 22 million repayment of debt principal and interest. Positive working capital movement of $19.5 million and net VAT collections of 9.4 million explain the remainder of the movement in the cash balance. In closing, Quarter Three results have been built on the ramp-up undertaken in Quarter Two, 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. With that, I will ask the operator to open the line for questions.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star 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 star 2. We will pause for a moment as callers join the queue. 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. I would also like to welcome Jody Kuzenko 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 in to the call. I hope that you have a productive day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.