Thank you for standing by. This is the conference operator. Welcome to the Torex Gold Resources Inc. Second Quarter 2022 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, Senior Vice President, Corporate Development and Investor Relations. Please go ahead, Mr. Rollins.
Thank you, operator, and good morning, everyone. On behalf of the Torex team, welcome to our Q2 2022 conference call. Before we begin, I wish to inform listeners that a presentation accompanying today's conference call can be found under the Investor section of our website at www.torexgold.com. I'd also like to note that certain statements to be made today by the management team may contain forward-looking information. As such, please refer to the detailed cautionary notes on page two of today's presentation, as well as those included in the Q2 2022 MD&A. On the call today, we have Jody Kuzenko, President and CEO, Andrew Snowden, CFO, as well as Dave Stefanuto, Executive Vice President, Technical Services and Capital Projects. Following the presentation, Jody, Andrew, and Dave will be available for the Q&A period.
This conference call is being webcast and will be available for replay on our website. Last night's press release and the accompanying financial statements in MD&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'll now turn the call over to Jody.
Oh, thank you, Dan, and good morning to all on the line. Welcome to the Torex Gold Q2 results call. I'll open my remarks this morning by saying we had a very strong second quarter, which sets us up nicely to deliver on guidance for the fourth year running. From an operational perspective, production came in slightly ahead of plan due to higher grades in the open pit and record underground mining rates within ELG Underground. The team at ELG continues to do an excellent job in keeping control on costs despite the challenging inflationary environment. On Media Luna, tunnel drives are progressing well, with the team delivering a record advance rate in June. We are also heavy into the procurement phase for long lead items and expect project activities to ramp up through the remainder of 2022.
New this morning, we have a new executive team member joining us on the call. Given that the project is now into the execution phase, Dave Stefanuto, our Executive Vice President of Technical Services and Capital Projects, will be joining us today and going forward to provide the update on Media Luna and answer all questions related to the project, particularly the hard ones. In terms of the agenda, nothing new there. I'll provide a brief reminder of the strategic pillars, which we continue to execute on. I'll step you through the key business and operational highlights specific to the second quarter, then over to Andrew Snowden for some detail on the financials. After that, Dave will provide a progress update on both Media Luna and exploration. To the extent that we're making any forward-looking statements, we're relying on the safe harbor language contained in that slide.
Starting on slide 4four, I wanted to refresh everyone on our strategic pillars, which reflect really the long-term vision of Torex, and I'll focus my comments on the three across the top. On optimize and extend ELG, we are continuing to work at evaluating additional options to modestly extend the life of the open pits, but really the focused effort is being taken at ELG Underground. Recall, we have reserve life in that asset out to 2027 at 1200 tons a day. This quarter, you're seeing some of the first results on optimizing that mining rate, and in the coming quarters, you will see some exploration results that speak to extending the asset life beyond current reserves. On advance and de-risk Media Luna, early days yet, but we're tracking to plan with project activity expected to ratchet up over the coming quarters.
On grow reserves and resources, drill programs are progressing well. We recently released results from exploration drilling at Media Luna and EPO and expect to publish several more releases prior to year-end. Turning now to slide five. We produced over 123,000 ounces of gold in the quarter, which was driven by nice grade in the open pit, higher than planned tons from high-grade ELG Underground, and slightly higher recoveries than we saw in quarter one as we transition out of a pocket of lower recovery ore in the Guajes pit. The underground really here was the standout of the quarter, with record average mining rates of 1,580 tons per day. We're targeting to maintain this rate through the back half of the year.
We delivered adjusted EBITDA of over $137 million, and this accounts for the Q2 annual payment we make for profit-sharing in Mexico. This year, it stood at $22 million. The cash-generating capability of this asset continues to show itself, with free cash flow generation standing at $74 million. We closed the quarter with $311 million in cash, over $460 million in available liquidity. We're well advanced in our discussions with the banks on increasing and extending our current credit facility, and Andrew will touch on that in his commentary. As expected, Media Luna is ramping up following board approval at the end of the prior quarter. Now over to slide six. You can see there that we're well positioned to deliver on full-year guidance. Three key areas of note on this slide.
We're tracking towards the upper end of full-year production guidance and expect second half output to be similar to first half. Our team is doing a great job containing costs within a challenging inflationary environment. As a result, we're targeting to achieve midpoint on AISC guidance for the year. The one area of change to our guidance is at Media Luna, where non-sustaining CapEx is now guided at $170 million-$210 million versus original guidance at $220 million-$270 million. I wanna take some time to explain this change. Post completion of the technical report, we conducted a thorough review of project cost flows, particularly around 2022. What we found is that we had prorated spending on freight, import taxes, and contingency to track with direct expenditures, when in reality, these indirect costs are likely to occur later in the project build.
We have pushed out $50 million of forecast expenditures into 2023 and 2024. I wanna be clear here that overall, there is no read-through to the project schedule or budget based on this change. Development of Media Luna is on schedule, and there's no change to the total project spend. Turning to slide seven, our strong safety performance continued. The company closed the quarter with a lost time injury frequency of zero over the last 12 months. Notably, we also hit the milestone of 10 million hours worked lost time, injury-free, all employees and contractors. As I've often said, the only thing harder than getting to zero is staying at zero, and the streak came to an end in July, when a contractor suffered a laceration to his finger while hanging pipe underground.
You'll note on this slide that our control programs to minimize the impact of COVID remain in place. On governance, we're welcoming a new director to our board. Rodrigo Sandoval brings with him significant experience from Mexico's mining industry. With his appointment, not only do we further strengthen and culturally diversify our board, our refresh that we started two years ago is now complete. Slide nine sets out quarterly details on key operational metrics. Two highlights here, really. One, you can see the consistency quarter-over-quarter, a testament to our strong systems culture and operating discipline that delivers reliable results. Two, in the bottom right-hand quadrant, you can see that uptick of mining rates in the underground to almost 1,600 tons per day out of our optimization efforts.
We've maximized equipment availability, space time, and have now opened up more than 20 headings underground, and you can expect the second quarter performance to be sustained in the second half. Slide 10 on unit costs sets out our performance through the first half of 2022 versus the blue bar at the bottom, which is full year of 2021. You can see there initiatives to hold the line on costs is helping offset natural inflationary pressures in the market. Overall, our team is doing a good job at pulling levers to deliver with higher priced consumables, energy consumption, and labor. Mining costs are running higher than last year, driven by additional rehandle during the rainy season and rehandle to support optimal blending to maintain met control in the plant. We also saw in the second quarter some lower utilization fleet rates within the open pit mining fleet.
Underground mining costs are holding strong, partially driven by increased mining rates, providing some economies of scale. Processing costs are lower, driven by reduced cyanide consumption, which has averaged around 2.5 kg per ton through the first half versus 4.7 kg per ton in 2021. Profit sharing is higher through H1 than last year. Recall, during quarter one, we accrued $2.6 million of additional profit sharing payments related to 2021, given the updated legal clarifications from the Mexican government around PTU. I'll now pass the call over to Andrew to review the quarterly financial results.
Okay. Thanks, Jody, and good morning, everyone. I'll start my commentary today by providing an overview of our Q2 financial performance as summarized here on slide 12. We had a strong quarter financially with low costs and a realized gold price of $1,865 an ounce, resulting in a total cash cost margin of 62% and an all-in sustaining margin of 50% during the quarter. Like our peers, though, we are seeing inflationary pressures in certain areas of our cost base, which for us is primarily in ammonia-related inputs into our plant, particularly with cyanide prices. I will say, though, that to date, we have been successful at actively managing these cost pressures through managing consumption rates through blending and the monitoring of discretionary spend. As Jody mentioned earlier, we continue to be confident in achieving our annual cost guidance despite these pressures.
One other comment on our all-in sustaining costs is that we had to slow down pit stripping at the El Limón pushback this quarter due to temporary labor and equipment availability limitations. This stripping picked back up in July, and so you should expect to see higher capitalized stripping in the second half of the year, and with this, a higher AISC to end the year within our guided range. With this strong cost management and margins, we generated $137 million in adjusted EBITDA and $127 million in operating cash flow during the quarter. This operating cash flow was after the $19 million of tax payments primarily related to monthly installments and a $22 million payment for the mandated Mexican profit sharing related to the 2021 year. As a reminder, this profit-sharing payment is paid each year in May.
After capital expenditure of just over $52 million, we delivered free cash flow of $74 million in the quarter. I wanna point out though, that we expect free cash flow to decline over the remainder of 2022 and remain negative during 2023 as spending on Media Luna increases in line with planned development activities. I also briefly just want to provide some guidance on depreciation to note that we are expecting to incur between $175 million and $200 million of accounting depreciation in the year. This is slightly lower than we saw last year, and that's really a result of the Media Luna approval in March of this year, and now the inclusion of reserves in the depreciation base for certain assets that will be used through the Media Luna years.
The tax depreciation in 2022 is expected to approximate between $70 million and $80 million, and that's a similar level to last year and the reason behind the deferred tax movements we've seen over the last few quarters. Turning now to slide 13 for a view of our cash movements during the quarter. As noted earlier, we ended the quarter with $311 million in cash and no debt, and that's an increase of $74 million in cash through the quarter. I just wanna highlight a few items on this cash waterfall. Firstly, on taxes, I mentioned earlier about the tax installments, and so the installments accounted for $18 million of that total tax payment in the quarter.
Going forward, I expect the tax installments to continue at this level, that's roughly in the $6 million-$7 million range a month for the remainder of the year. On non-cash working capital, we had a positive inflow during the quarter, that just reflects normal movements following the $14 million outflow we had during Q1. These positive inflows helped offset the $22 million payment related to the mandated profit sharing and also included some higher than anticipated VAT receipts due to timing as we closed Q2 with a lower level of VAT receivables on the balance sheet than we held in recent quarters. On capital expenditure, we invested $53 million in CapEx during the quarter, including $30 million on Media Luna.
As I noted earlier, we expect these quarterly CapEx numbers to increase quarter-over-quarter in 2022 and peak in 2023, before tailing off in 2024 in line with the timing of Media Luna development. Turning now to our balance sheet as summarized here on slide 14, we exited the quarter with $311 million in cash and over $460 million in available liquidity. Our current credit facility, that's included in that available liquidity number, matures in March 2023, and we are well advanced in a process with a syndicate of international banks to increase and extend that credit facility.
At a high level, we're looking to increase the amount of the available credit to $250 million, and that's from the current $150 million level, and also extend the maturity into 2025. I expect to finalize this expanded facility through the course of Q3, and we'll provide further details at that time. The increased credit facility, the robust balance sheet, and strong forecast cash flow from ELG places on solid footing to not only fund the development of Media Luna, but also continue to reinvest in value-creating exploration. I do also want to note that as previously commented, we are also continuing to monitor the high-yield market to assess whether an issuance would make sense for us at some point in the future.
That's something we will continue to monitor and we obviously will have significant flexibility on that, just given the expanded credit facility we have on the verge of agreeing here. Finally, now just turning to slide 15. As a reminder, I've noted last quarter, we've hedged approximately 25% of production starting in Q4 of this year through until the end of 2023 at a weighted average price of $1,921 an ounce. With the decline in gold price through the quarter, these hedges did result in a $17 million gain, and that was recognized in our Q2 income statement. As usual, these unrealized gains have been backed out from our reported adjusted earnings and adjusted EBITDA.
Depending on market conditions, we may consider increasing the amount hedged in 2023, and also hedge a portion of production in 2024. This hedging will be with the aim of protecting the balance sheet during a period of elevated capital investment related to Media Luna. That concludes my comments for today. With that, I'll pass the call over to Dave Stefanuto.
Thank you, Andrew, and good morning. Turning to slide 17, I'll provide some key highlights on the Media Luna Project. Following board approval at the end of March, we ramped up the full project team and got down to work on the project. Firstly, a key aspect of enabling a successful project is to put in place the necessary project controls environment. In my experience, proper project controls is necessary to manage the progress of activities, ensuring the project stays on schedule and on budget. Secondly, we kept pace with the critical path development in respect to the Guajes Tunnel, as well as our South Portal developments.
Thirdly, we initiated the procurement phase of the project and have or are in the process of cutting POs for key long lead items such as flotation cells, regrind mills, our Guajes Tunnel conveyor, and the underground battery electric fleet. Lastly, we also continue to progress with key civils on the south side of the Balsas River and preparations to start civil work in the new process area at the north side. This included engineering on an upgraded road to bypass the town of San Miguel, which we received a change of land use permit and MIA authorization during the quarter. On the permitting front, discussions with SEMARNAT continue in relation to our MIA Integral and CENACE on our upgraded power supply. At this time, discussions are progressing well, and we anticipate having both approvals in hand well before required.
As Jody spoke to earlier, during this period, we confirmed our project expenditure profile and redistributed our indirect costs associated with freight, import taxes, and contingency that are typically not incurred in the early phase of a project. This is a key element that has resulted in the lower expenditure forecast for 2022, which we expect to be distributed over the back half of the project execution. Overall, I'd like to emphasize that the development of the Media Luna project is tracking to schedule and remains on budget. Turning to slide 18, we have some pictures of our progress to date. On the left, you can see the development of our South Portal Lower, which as of July 31st, has advanced 822 meters. In the middle is an aerial overview of the south side civil work, including the South Portal Upper and Lower.
As you can see, pad preparation for the new paste plant has commenced near the South Portal Upper. On the right is a close-up of our South Portal Lower, where you can see the portal canopy being completed and our temporary water recycling system is in place. Slide 19 illustrates our critical path development, which I'm sure everyone on the call is familiar with at this time. The Guajes Tunnel has now advanced approximately 2.3 km as of July end, with rates continuing to improve, including a record advanced rate of 6.7 meters per day during the month of June. Our South Portal Upper has now split, with the top ramp now advanced more than 1 km and our bottom ramp over 320 meters.
Progress on the South Portal Upper tunnels was impacted by similar challenging ground conditions experienced by the lower tunnel last period. Diamond drill probing between the planned profile of the tunnels was successful in identifying upcoming faulting in the limestone and the location of the transition to competent granodiorite. This has enabled the team to prepare in advance for any additional ground or water control measures. Progress on our South Portal Lower also improved over the month of June, achieving near planned rates as challenging ground conditions encountered earlier in February and March improved over this period. A second diamond drill probe along the profile of the South Portal Lower has shown that the ground conditions continue to be favorable moving forward. We understood that we would initially be driving through shale and limestone as part of the initial development before moving into granodiorite.
Overall, the challenging ground conditions were related to fault structures in the limestone. Tunnel development in both South Portals Lower and Upper will advance into competent granodiorite in early August. From this point on, we are not expecting any material issues as we continue to develop the ore body. Moving to exploration on slide 20, we outlined the prospective nature of the Morelos property and our planned exploration and drilling program for 2022. Overall, we're around 50% completion for most of our drill programs and expect to release the results of a number of programs over the coming weeks. Turning to slide 21, I want to highlight initial results from the expansionary drill program at EPO, which were press released in July. As many know, EPO is a highly prospective target which already hosts an inferred gold equivalent resource of over 1 million ounces.
While the main focus at ELG is on infill drilling, we have started to step out beyond the known resource. Overall, we're encouraged by the results. We have extended the mineralized footprint 150 meters to the west and 250 meters to the south. This bodes well for both the delineation of additional resources and the potential to become an incremental source feed beyond Media Luna. Additionally, our on-site geologists conducted a small scout program in late 2021, following up on a potential new target identified by a high-resolution magnetic survey completed in 2021. The program was a success with four of the six holes hitting mineralization, including one hole which returned over 16.5 meters, grading 9.6 grams per ton gold equivalent.
Given the success of the high-res magnetic survey, our team has recently completed a similar survey on the north side of the Balsas River, and we're eagerly awaiting the findings of this survey. I'll now turn the call over to Jody.
Thanks, Dave. Just to close up here, Torex delivered an excellent quarter on multiple fronts and is really well positioned to deliver on production and cost guidance for the fourth year running. We're executing on our strategic priorities. Focus remains on delivering consistent production and costs while bringing Media Luna into production on schedule and on budget. With our feasibility study, we have cast a realistic plan, and now we're on to doing what we do best, which is delivering. I'll turn the call back over to Joe. That concludes my comments, but we're open for any questions, certainly, Andrew, Dave, and I.
Thank you, Jody. We will now begin the Q&A session. To join the question queue, you may press star and one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Your first question comes from Trevor Turnbull with Scotia Capital. Please go ahead.
Yeah. Sorry, Jody. Thank you. Clearly the cost discipline is helping to offset inflation. I see that some of that has been. It sounds like it's been looking for efficiencies, you're reducing consumption wherever you can. I just wondered if some of that is also due to existing lower cost inventories, and as you get deeper into the year, if you're starting to see inflation catch up as you replenish those supplies.
Andrew here, Trevor. Just to respond to that, in short, the answer is no, it's not driven by, you know, temporary benefits from, you know, inventory movements here. I think the cost position that we've recorded for the first half of the year here is generally in line with expectations. I expect that the main variability you'll see is just with increased stripping, as we look to, you know, close out our full year within our AISC range.
Other than that, I think our cost profile and the inflationary pressures we're seeing within our input costs, and you're seeing those in our numbers in the first half of the year, and I think you'll see those in our numbers for the second half of the year. There'll be no surprises there for you when you kind of see our Q3 results. Everything will be in line with the first half.
That sounds really good. You know, leaving the sustaining capital of stripping aside, like the total cash cost, that number, or the cash costs ex royalties should be fairly steady then, as we move through the rest of the year.
Yeah. I think our guided ranges, we're still very comfortable with those ranges, and so I'd expect full year and TCC to be within the ranges. There's no revisions that we're expecting.
Okay. Thank you. I had one other question, that's more on the Media Luna development. I saw there's some metrics on the two South Portal access ways. Can you just remind me, kind of what the total distance that you're looking for in each of those? Once you do get those completed and where they need to be and they get tied in, where does underground development shift? Do you start to work on developing working levels for ore access or for underground drilling? Kind of, what happens after the portals are done?
Dave Stefanuto here. Essentially, for both of the portals, the upper, they're just over 1.5 km in total length of development that we need to do. The South Portal Lower is a little bit longer as it continues to move towards the Guajes tunnel and connect to the Guajes tunnel at a breakthrough point. Following completion of that, you are correct. Both of those developments will start on level development, working towards the cross cuts and the drift development towards our first production stopes.
Do you have a kind of a rough timeline of when you expect that they will kinda make that transition?
We're looking at the South Portal Upper will be hitting our West vent at it towards midpoint of next year. Our South Portal Lower will actually continue on. We're gonna actually hit our ramp on South Portal Lower towards the fall of this year, and we'll continue to ramp down towards the Guajes Tunnel, where in late 2023, we'll hit breakthrough with the team coming from the north side on the Guajes.
Okay. Great. Thank you very much.
The next question is from Wayne Lam with RBC Capital Markets. Please go ahead.
Oh, hey, morning, guys. Just wondering on the permitting, can you remind us between the MIA modification that was received and the permitting from CONAGUA, are all the permits in hand for full completion of the tunnel, including beneath the river? Just seems like it's taking a little bit longer than anticipated for the MIA Integral. Is that permitting just needed ahead of the operations in 2024? Do you have any updated guidance on the timing for that?
Morning, Wayne. Thanks for the questions. I'll take those ones. All permitting is in hand for tunneling on Guajes, including permitting beneath the Balsas River. That's your first question. Second question, you'll recall that we sort of eyeballed middle of the year to receive our MIA Integral for the balance of the project. We're in really tight discussions with SEMARNAT these days, including a site visit last week for two days by the regulators. That permit is well in sight. We're continuing to work to finish that. But you are quite correct. We don't need that. We have lots of time. We don't need that until we really start production on the project.
Okay, perfect. That's good to hear. Just wondering, for the increase in the power draw, what's the guided timing on that and what are the implications if that isn't received? Is it just greater diesel usage or would there be other operational implications?
Yeah. Dave here. The timing to actually get the permit for the connection to the 230 KV voltage system will be in Q1 of 2024. We're expecting to energize the new 230 KV substation at that time, and that'll give us over 60 MW of power to support the underground development. Having said that, we have lots of time to continue to advance the development and advance the ramp-up of the project because we are constructing a temporary diesel generating facility to support us during the construction period. We don't see that as critical path at all or a concern.
Okay, perfect. Thanks. I saw the commentary on the ramp-up or the targeted ramp-up of the underground at ELG to 2,000 tons per day, which I don't think I'd seen before. I think prior guidance was more, much more conservative at about, you know, 1,200, 1,300, and the fees was about 1,400. Just wondering what's driving that, and kind of what's helping to where you see the ramp up on the underground and getting to those levels.
Yep, sure, Wayne. 2,000 tons a day is a target that we've been talking about internally for a while, and you're starting to see the first phases of working on that. It comes in a couple of phases. One is optimize what you've got. What can you do with equipment availability, which was our key bottleneck there, and space readiness for mining, and can we open up more headings? Getting from 1,200-1,300 tons a day to what you saw this quarter, 1,500-1,600 tons a day, that's a reflection of that work. We also are implementing our business process framework underground. That's what we do at the plant.
Really, that's a sophisticated system for planning, scheduling, and execution with a view to getting excellent cycle times and making sure that we're as efficient as we can be in the underground. That's step one, optimize what you've got. Step two, we're looking to hole in portal three. We're almost at destination. We expect to be there by the end of August. We need to put an ore pass in to connect up that mine. Once that's done, we expect efficiencies furthered because we're gonna be reducing haul distances by about half. The third is we've identified some areas in that deposit for long-haul open stoping. This helps us in two ways, gets us more volumes out of ELG Underground, and really sets us up nicely for a training ground for employees as we're thinking about our Media Luna workforce.
Today, we do cut and fill at ELG Underground. In the future, we'll be doing long-haul open stoping, and so we wanna move to that method where possible for more than one reason. We're also looking at cut upgrades in the underground as we drive down costs. The collection of those things coming together, we think get us to our long-term goal of 2,000 tons a day. Your next question is when we're going to see that. I think you'll see what we're comfortable with saying to the market now is Q2 rates will remain at those levels for the back half of this year. We have internal targets for next year, and once we feel really comfortable with those, we'll let you know what that increases to.
Okay, great. Thanks. That's good color. Maybe just last one for me. I'm just wondering what percentage of the operating costs would you estimate are attributed to fuel? Can you give us an idea of the impact on costs due to fuel subsidies in Mexico? Do you see any risk of the government removing those given the higher prices?
Wayne, I'll take that question. In terms of overall diesel costs, for the year, I mean, in terms of our overall OpEx, it was not a significant percentage. I think our current forecast, if I recall correctly, has full-year costs, diesel costs in the $25 million range. That's, you know, that just gives you a flavor for the magnitude of it. You know, in terms of risks of the subsidies being pulled, I mean, obviously that's a you know, a government decision, but we've not seen any indications of those subsidies being impacted.
Clearly if those subsidies were to be eliminated, that would have, you know, broad consequences across the country, and it's been a long-standing policy of the Mexican government to support and subsidize those diesel costs. There's no signs of that yet, but that gives you a you know a sense of the impact it would have on our operating costs.
Okay, perfect. That's all for me. Thank you very much.
Thanks, Wayne.
As a reminder, if you wish to ask a question, please press star then one. The next question is from Don DeMarco with National Bank Financial. Please go ahead.
Oh, hi. Thank you. Thank you, operator, and good morning, Jody and team. Congratulations on a strong quarter. Just continuing with another question to Andrew. Andrew, looking at Media Luna CapEx, whatever's remaining, just over $800 million I guess, how much is set in fixed price contracts versus that which might be prone to cost escalation?
We're currently working through the RFP process and purchase order and contract issuance at this point, Don DeMarco. Obviously the project was only approved back in March of this year. We'll have more clarity on, you know, potential risks associated with those contracts once they get placed over the course of the year. I don't really have a clear answer to you on that yet. I will say that we still feel, you know, very confident with our capital number.
As we talked about on the last earnings call, you know, that estimate does include you know, quotes from earlier on this year and reflects very much the inflationary environment that we saw earlier on this year, as well as a very healthy contingency. We do feel that if there are any unexpected increases through the course of the contract issuance, we're well-placed to absorb those. That's maybe just some high level comments. I don't know, Dave, if there's anything that you want to add to that.
Yeah. I think in terms of having fixed price contracts, I think we have to remember that we have mobilized our underground development contractor. We do have rates that are known and understood that'll continue through the balance of the development of the project with that contractor as well as our key civil contractors. As Andrew said, we're in the process of doing the engineering and getting those requests for proposals out on the street. That includes the work to continue with our mechanical piping, electrical instrumentation work that'll happen in 2023 as part of our process plant installation. Hopefully towards the end of the year, early Q1, we'll have locked in those prices for those contracts.
We continue to make commitments on the PO front as well, and that seems to be tracking in line with our feasibility study.
Okay. Understood. Yeah, still early in the process. From my next question to the team, so the grades in the open pit in the underground in Q2 were above reserve grade. Are you finding that you're just finding better than expected reconciliation, or are you just working through a high grade zone right now? If the latter, I guess that might imply the grades could be lower in, say, 2023 on a reversion to reserve levels.
Yeah, I'll take that one, Don. The short answer to that question is it's a skarn ore body. We do our best, and our reconciliations over time and on an annual basis turn out to what we think it's going to be. We do hit pockets of high grade, and we'll take them where we get them. In this quarter, we saw a very nice pocket of high grade at El Limón pit. We knew it was there. What was a little bit of a surprise was how much was there. Happily, we took it. Can't reconcile this ore body on a month by month or a quarter by quarter basis, but annually, certainly it holds up to what we think is there.
Oh, okay. That high-grade zone that you hit was maybe a bit unexpected, or was it? Do you think it was in the mine plan or?
It was in the plan. We knew it was there. There was just a little bit more than we thought.
Okay, that's good. Looking at what costs on a per ounce basis were lower, and they look great. On a per ton basis, I see they're edging higher. You know, we see grades are up 14% quarter-over-quarter. Is it fair to say that the uptick in grade is providing an offset to whatever inflationary pressures are so prevalent in the sector right now?
Look, I think there's yeah, that definitely played a part in the quarter. You know, I think the commentary that we provided earlier on in our remarks is, you know, the key focus area, at least for the course of 2022 here, where in terms of kind of inflationary pressures, we are seeing them across the board on input costs into the plant. The biggest opportunity we found, at least from an operating cost perspective, is to focus on blending and to manage our cyanide consumptions. Those are really the key drivers. There's other headwinds out there as well.
You know, overall, despite this obviously pocket of higher grade material that we saw through the course of Q2 here, for full year 2022, we now feel very comfortable with our guided range, and that's where we'll end the year.
Okay. Thanks, Andrew. Is that high grade zone that you encountered in Q2, are you still working through that? Do you think will the grades in the balance of the year be comparable, or do you expect those to ease a little bit whatever?
We expect them to come up slightly, certainly in that area, Don.
Perfect. Okay, well, that's all for me. Thanks very much.
Thank you.
As there appear to be no more questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a great day.