Thank you for standing by. This is the conference operator. Welcome to Torex Gold's first quarter 2025 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. 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 the 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.
Thank you, Operator, and good morning, everyone. On behalf of the Torex team, welcome to our Q1 2025 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 cost-sharing notes on page two of today's presentation, as well as those included in the Q1 2025 MD&A. On the call today, we have Jody Kuzenko, President and CEO, and Dave Stefanuto, Executive Vice President, Technical Services and Capital Projects, who are both in Mexico City, having just hosted the board on a site visit to Morelos, while Andrew Snowden, our CFO, is here with us in Toronto.
Following the presentation, Jody, Andrew, and Dave will be available for the question-and-answer period. This conference call is being webcast and will be available for replay on our website. Last night's press release and the company financial statements and MD&A are posted on our website and have also been filed on SEDAR+. All amounts in today's call are U.S. dollars unless otherwise stated. I'll now turn the call over to Jody.
Thank you, Dan, and good morning to all on the line from Mexico City here. To start, 2025 has been a period of significant milestones attained for Torex, some of which are listed here on slide four. First, as you will have seen, last week we published our final quarterly update on the Media Luna project. Construction is essentially concluded. I'll let Dave speak in more detail on the items remaining, but the two largest are completion and commissioning of the P.A.C.E. plant and the tie-in of our upgraded power infrastructure to the national grid. Both of these are tracking well and expect to be completed over the next few weeks. Second, and importantly, the tie-in period is behind us. From mid-February to mid-March, we successfully completed this exercise with the process plant. All in, there were 83 separate tie-ins and 136 separate systems to commission.
This required our entire team and more than 1,000 contractors to complete. This was done not only on schedule and within budget, but more importantly, without a single safety incident. Third, post the tie-in period, we produced our first concentrates and initial shipments left the site in early April. In parallel with construction, we maintained a major focus on people with our workforce transition plan, which is now also substantially complete. All in, we transitioned or recruited nearly 500 employees to operate in Media Luna Underground or support our new surface operations while maintaining our usual high level of commitment to recruitment from our local communities. To wrap all of this up, we achieved commercial production at Media Luna on schedule on April 26th. Our ramp-up is going according to plan, with the mine and mill both operating above the required thresholds to make this declaration.
Finally, in quarter one, we also released our year-end mineral reserve and resource update in March, delivering 7% reserve growth year-over-year. Turning to slide five, I wanted to briefly provide an update on the progress we've made across each of our six strategic pillars. On our first pillar, I just touched on the highlights for Media Luna, so I'll make some comments here on EPO. The feasibility study is progressing well, and we remain on track to commence underground development in quarter two, even ahead of the feasibility study being finalized. On optimized Morelos production and cost, we're now focused on completing and commissioning the P.A.C.E. plant so we can achieve those steady-state mining rates of 7,500 tons per day in Media Luna by mid-2026.
In parallel, we have a number of initiatives in play on what I call Media Luna 2.0, how to operate the mine safer, faster, and cheaper. As Media Luna gains economies of scale and the teams get more and more comfortable with our new operation, I expect we'll see meaningful improvements in our cost structure over the coming quarter. On growth reserves and resources, we released our year-end reserve and resource update in the quarter. I'll touch more on the specific highlights on that before the end of the call. On disciplined growth and capital allocation, we continued to draw on our credit facility as planned during quarter one, given it was our highest tax and royalty payment quarter of the year, coupled with our lowest production quarter. Andrew will speak more on this shortly.
In addition, with our Media Luna progressing to plan, we expect to be in a position to outline our inaugural return of capital policy to shareholders later this year. On retaining and attracting talent, I want to take this time to acknowledge our human resources, safety, and operational teams for successfully coordinating and training all of the employees that changed roles or onboarded during our workforce transition program. This was no small feat. Finally, on responsible mining, I'd like to take a bit of extended time here to talk about safety, given the events of December. I want to share some of the proactive measures we've taken since the conclusion of our internal investigation into the fatal carbon monoxide exposure that happened last year.
We've embarked on what we're calling a next-level safety program to ensure that we reestablish ourselves as industry leaders in safety and that our operations can return to our prior fatality-free status. The program includes three specific work streams. First, refreshing the systemic work relating to fatal risk standards and critical controls, with a view to increasing awareness for all of our workers and contractors on triggers that could result in a fatal event and the controls that must be in place prior to starting work and while work is being undertaken. Second, we've commissioned a fresh eyes assessment where world experts will be at site at Morelos reviewing conditions, systems, and our culture in order to advise our management team and our board of directors about further opportunities for improvements on the continued journey to become one of the safest operations in the industry.
Finally, we plan to undertake a series of in-depth dialogue sessions with all employees across our site and the corporate office where risk appetite is openly discussed and personal commitments are publicly made about risk-taking behavior. Our work will never stop when it comes to ensuring that our employees and contractors return home safely after each shift, and we believe that taking these measures will be a great first step in getting us back on track to what was an industry-leading safety record. Moving over to slide six, I'll touch on some operational and financial highlights from the quarter. On production, as expected, it was lower this quarter given the four-week tie-in at the processing plant and the ramp-up post-restart. All-in sustaining costs were much better than we originally anticipated, as initial sales for Media Luna commenced in early April versus the original plan of late March.
It just took us an extra couple of weeks to build up the required inventory of concentrates to get sales going. Because of that, higher- cost ore from the commissioning phase from the Media Luna mine will now be recognized in quarter two in conjunction with those sales. Finally, on balance sheet, we continue to draw on our debt facility during the quarter as planned. Notwithstanding the low production, the Media Luna spend, and the significant annual tax outflows, we ended the quarter with nearly $200 million in available liquidity and $107 million of that sitting in cash. Slide seven illustrates how our operations performed, with production on the top left and ore processed on the top right. Both of these graphs reflect the mill tie-in period. The bottom left shows our grade profile for the quarter, which was lower than typical. This has nothing to do with Media Luna.
It's because the open pits were winding down. This grade doesn't yet reflect the benefit of the meaningful volumes that we see coming of higher-grade Media Luna ore. Mining rates at ELG Underground, shown here on the bottom right, were light as we continue to recover from the events of December, and our contractor has had equipment availability issues. I'm pleased to see rates have picked up in late March, early April, and we're expecting to remain at our targeted 2,800 tons per day for the remainder of the year. Touching on guidance on slide eight, with the tie-ins now behind us, production is expected to pick up during quarter two as Media Luna steadily ramps up and recoveries achieve steady-state levels during the fourth. We're expecting production levels to increase modestly again during quarter three and remain relatively stable from there on after.
All-in sustaining costs were at $1,405 per ounce for quarter one, and it's expected to peak above the upper end of the guided range in quarter two for the reasons I've already described. We expect a decline in the second half of the year as Media Luna ramps up, economies of scale are achieved, and production increases. We continue to expect to exit this year closer to the lower end of the guided range for AISC. On capital, quarter one marked the final quarter of meaningful investment in Media Luna as commercial production has now been declared.
The remaining guidance for non-sustaining CapEx reflects spend on the EPO feasibility study, which is currently underway, initial CapEx to be spent on EPO development, which will commence here in quarter two, and the modest level of non-sustaining CapEx for Media Luna while we complete commissioning of the P.A.C.E. plant and the P.A.C.E. distribution system. On the note of CapEx, I'll pass it over to Andrew to speak to our financial in more detail.
Great. Thank you, Jody, and good morning, everyone. I'll start my overview on slide 10 for those following along in the presentation. This summarizes our financial performance through the quarter. This, of course, was an atypical quarter for us, as our financial results were impacted by both the four-week Media Luna plant tie-in period and the fact that sales from the early Media Luna and higher-cost production did not commence until early April. These sales did not impact our Q1 financial results as it had initially been planned. As a result, our first quarter all-in sustaining costs were better than expected at $1,405 an ounce, with an all-in sustaining cost margin of 50%, and that's shown on the top left of the chart here.
As Jody mentioned, our all-in sustaining costs are now expected to peak in the second quarter with the sales of the early higher-cost Media Luna production before decreasing through the second half of the year. To flag, as I'm sure is well understood, one area we are seeing cost pressure to date is from the higher gold price compared to the assumed $2,500 an ounce in our guidance. Although a higher gold price does expand margins, it also increases our royalty and profit-sharing accruals, as well as reduces the denominator in the gold- equivalent calculation, thus increasing costs. Just to give you a sensitivity here, for each $100 an ounce increase in the gold price, with other commodity prices remaining flat, it increases our all-in sustaining costs by about $25 an ounce from each of these factors combined.
Just continuing on the financial highlights on this slide briefly, you can see the lower adjusted EBITDA, which is shown in the top right chart. This really just reflects the four-week downtime at the mill. In the bottom left chart, you can see that spending on Media Luna decreased substantially during the quarter, and Media Luna CapEx is expected to almost entirely come off now in Q2, aside from some residual CapEx for the P.A.C.E. plant that Jody noted. Finally, just looking at the bottom right chart here, you can see our free cash flow during the quarter, which reflects Media Luna CapEx spend, but most significantly, the payment of the annual taxes and royalties, with Q1 always being our seasonally highest quarter of tax- and- royalty outflows.
Turning now to slide 11, you can see a summary of our unit costs here, and I'll just make a few comments on some of the movements. Starting first with mining costs. The open pit costs here were significantly higher than 2024, and this really just reflects the lower productivities as mining in our last open pit, which is Allemancer, winds down later this quarter. Underground costs at ELG Underground, however, remain consistent with last year's levels. On processing, the low unit costs really reflect the downtime in the mill, as well as the influence of the weaker Mexican peso during the quarter relative to levels experienced throughout most of 2024. Plant support costs were also lower during the quarter, as a higher proportion of these costs were capitalized during the mill tie-in period, as well as, again, the impact of the weaker peso.
On the Mexican profit-sharing payment, that is tracking lower year-to-date compared to last year, just given the lower Q1 production, which is about half of our quarterly run rate. Noting this payment is tied to our taxable profit in Mexico. Finally, on this slide, just to note, in these cost trends, we are not seeing any noteworthy pressure from tariffs at this point, but we are continuing to monitor potential impacts in our supply chain and develop mitigations in the event that we do start to see pressure there. Turning next to slide 12, you can see here that we closed the quarter with $107 million in cash and drew down on our credit facility in order to maintain the target of holding that minimum $100 million cash.
$102 million of taxes paid in the quarter, as well as the $124 million of capital expenditure and our lowest production quarter of the year, resulted in the planned drawdown of about $130 million on our debt facility during the quarter. With production ramping up at Media Luna, we expect we'll repay the drawn amount quickly through the second half of 2025, particularly as we're supported by the backdrop of these record gold prices. As mentioned as well, capital expenditure is expected to materially decline going forward as spending on Media Luna winds down, and working capital-related project vendor payments and capitalized inventory bills end with the declaration of commercial production effective May 1st. Looking forward, there are a couple of elements I wanted to touch on here briefly. First is the annual profit-sharing payment that we make in May of every year.
This year, the payment is estimated to be about $30 million and will be recognized in operating cash flow in the second quarter. Additionally, with the filing of our annual taxes and the strong gold price environment we saw through the course of 2024, our installment rates, which are reset every time we file our tax return, that installment rate will increase for the balance of this year, and I anticipate the monthly payments will average about $10 million a month through the balance of 2025. With the seasonal cash outflows behind us post Q2 and a material decline in capital spending at Media Luna, we remain very well positioned to return to positive free cash flow mid this year.
Next, turning to our liquidity, which you can see here on slide 13, our available liquidity as of the end of March was $198 million, with $107 million in cash and $91 million available to us on the credit facility. As a reminder, we continue to have about $150 million accordion feature on our credit facility, which does provide us some additional flexibility to deliver on our strategic objectives as required. Our net debt position at the end of the quarter was $175 million, of which $87 million related to lease obligations. Excluding those lease obligations, our net debt was approximately $90 million, completely in line with our plans and the guidance we provided on previous calls. Finally, I'll just touch briefly on our hedge book, which you can see summarized on slide 14.
Just to note here, we did not add any hedges to our book since our year-end update. We continue to have a mixture, at least on the peso side, a mixture of zero-cost collars and forward contracts in place to protect our peso denominated operating costs. This provides protection for about 60% of our peso exposure through the course of the year. As a reminder, all of our gold forward contracts expired in 2024, and we do not have plans to put any further forwards in place. We do have, as summarized on this slide, though, some gold puts in place currently, and this offers us downside protection while offering full upside exposure to a rising gold price. With that, I will hand the call over to Dave.
Thank you, Andrew, and good morning, everyone. I'll start with an update on the project's progress here on slide 16. Last week, we released our final quarterly Media Luna update announcing that we had achieved commercial production. This means that construction is substantially complete, mine and mill throughput have averaged over 40% and 60% of design- rates for 30 days, respectively, product is saleable, and metallurgical recoveries have averaged at least 60% of the design recovery levels. Performance of the new flotation circuits in the upgraded processing plant is improving each day, and we're well on track to deliver our nine-week Ramp-Up Objective. As Jody mentioned, overall project progress sat at 98% complete with commissioning of the P.A.C.E. plant and the P.A.C.E. distribution system, as well as the connection of our upgraded power infrastructure to the national grid, both expected to be completed in the coming weeks.
In the underground, we continue to remain ahead of plan on definition drilling, with 51 of 60 stropes planned to be mined in 2025 drilled off, 40 from 2026, and 14 from 2027. Development rates also continue to track ahead of plan, with over 1,300 meters completed in March compared to a budget of 1,200 meters. Teams are focused on ramping up to our new design mining rate of 7,500 tons per day by mid-2026, six months ahead of schedule. With P.A.C.E. plant commissioning expected to be completed this quarter, we remain on target to deliver on this commitment. Finally, our workforce transition is substantially complete, another significant undertaking. We transitioned approximately 200 employees from our Open Pit Operation, trained them to operate underground, and have them deployed into our Media Luna Underground Operation.
We also will hire approximately 160 new employees to work at Media Luna and transferred or recruited approximately 110 new employees to support our surface operations. Putting to slide 17, we show some recent highlights from Media Luna. Concentrate shipment commenced the first week of April. In the top left picture, you can see the concentrate loaded into a truck in our loading bay. The bottom left picture shows progress at the P.A.C.E. plant where the filter presses were assembled during the quarter, and water testing commenced on the P.A.C.E. plant thickener. The middle picture shows ore being transported out of the Media Luna mine using the WiSE conveyor and then hauled to the processing plant. At the right-hand picture, it shows our copper and iron- sulfide flotation circuits in operation.
I want to take this moment to personally congratulate all of our employees, contractors, suppliers, OEMs, and all other stakeholders who have had a hand in assisting us with delivering this project within target budget and schedule. It took thousands of people working together to accomplish what we have at Media Luna, and I'm proud of the work that was undertaken on this project. With that, I'll turn it back over to Jody.
Thanks, Dave. You've earned some congratulations and acknowledgment as well, certainly. Those thousands of people couldn't have done the work they've done without your leadership, and we couldn't have achieved the success we achieved without you. Thank you for that. Before I ask an operator to open up the call for questions, I wanted to touch on the news that we put out this quarter relating to our strategic objective of grow reserves and resources. Starting here with our Reserve Update on slide 19. I'm pleased to say that we grew overall reserves by 7% year-over-year, primarily reflecting the work done to bring EPO into the mine plan, but also replacing depletion at ELG Underground. This happened despite a slower-than-expected start to our drilling season as a result of bringing in a new drilling contractor and associated time with de-mob and remobilization.
I firmly believe we'll continue to replace reserves at ELG Underground year after year, pushing out its mine life well beyond the current reserve estimate of 2029. Slide 20 depicts our Resource Growth over 2023. It wasn't quite as much as the reserve growth, given that we prioritized infill drilling with the contractor changeout, but still a 3% increase in M&I resources prior to ore mine. The main contributor here was Definition Drilling at Media Luna. We're looking to ramp up our exploration program this year with 125,000 meters of drilling planned and a full-year budget of $45 million. The 2025 program represents almost a 50% increase in spend and close to double the meters drilled in 2024. Our exploration team is going to be very busy.
While a large portion of the budget will be targeted towards expanding resources within ELG and the Media Luna cluster, a portion of the budget, for the first time in many, many years, will be focused on regional drilling as we look to make the next big discovery on our 29,000-hectare property. Some of the new targets being drilled in 2025 include Escalip, El Naranjo, and Todos Santos. Slide 21 here summarizes the results we released in February from the 2024 drilling program at Media Luna West and, my favorite, excitingly, some initial drill results testing we conducted at Media Luna East. The drill testing we conducted there happened after we successfully negotiated a land access agreement with the local ejido in late 2024.
The results from Media Luna West continue to be promising, with multiple high-grade intercepts returned, including over 13 grams per tonne gold- equivalent over 28 meters and another over 22 grams per tonne gold- equivalent over 13 meters. Drilling will continue there this year with 10,000 meters planned and a goal of declaring an initial resource there with our year-end update in March of 2026. At Media Luna East, which sits in very close proximity to the Media Luna main ore body, strong results were returned from just over 3,300 meters of drill testing we conducted. Of important note is the high copper signature we're seeing there, with multiple intercepts returning grades in excess of 2%, including one hole which returned a copper grade of 4.5% and a gold grade of nearly 19 grams per tonne over 18 meters.
I'm very excited to see what the 10,000-meter drill program we have planned there for this year will return. Now, all in, by way of wrap and closing here, it's been quite the major milestone quarter for Torex across the board. I would even use the word pivotal to describe it. What we achieved here at Media Luna all came together within a span of weeks, but really has been three years of hard work and heavy investment in the making. I want to take this opportunity as I close the call to thank all of our stakeholders for their trust and support as we delivered on this massive undertaking. This marks the end of our capital-intensive period and the start of our transition to being a gold and copper producer, with all eyes set on our pivot back to strong free cash flow in the coming quarter.
As I have often said to my team, with cash, all things are possible, and we're very much looking forward to the next phases of opportunity to continue to deliver superior value to our shareholders. With that, operator, I'll open the call for questions.
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'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 momentarily as callers join the queue. Our first question will come from Cosmos Chiu with CIBC. You may now go ahead.
Thanks. Thanks, Jody, Andrew, Jayven, and Dan, and congratulations on achieving commercial production at Media Luna. Maybe my first question is on your balance sheet here. As you mentioned, Q1 is usually heavier in terms of cash outflows, so you've had to draw $130 million on your debt facility. Could you remind us of your sort of optimal capital structure? Jody, will you try to pay back this debt as soon as possible to zero? Bigger picture, as you become free cash flow positive later on in 2025, how about a dividend? You also have an NCIB in place. Haven't used it yet. Could you maybe talk about that as well?
Sure. I'm talking with Andrew here, so maybe I'll take your question initially, and Jody can obviously jump in.
Hi, Andrew.
Hi there. Good morning. In terms of the kind of cash flow and credit facilities, you're right, we drew most of that, so it was $130 million through the course of Q1. I expect we'll draw a little bit, or we have drawn a little bit more in April, just to support the kind of finalization of the ramp-up of the mine. I expect now we've capped out on the draw on our credit facility, and at this point, we're well set to be able to pay down that credit facility through the back half of this year. I expect that we will end Q2 roughly where we are today in terms of the draw, and then look to repay that through the course of the second half of the year.
Because do not forget, our free cash flow potential and our free cash flow expectations will turn pretty significant starting in the month of June. That will allow us, I think, to be able to pay down our debt as well as advance a number of other strategic priorities. We have talked about the exploration priorities already in the call. We have talked about constructing EPO. The other priority, in addition to those and paying down our debt, will be to finalize our return of capital program. We have been very public about that for the past several quarters around our intent to commence that once we transition back to free cash flow. We expect that that will be a combination of both a dividend and a share buyback program.
As you know, we've set ourselves up to be able to do that with the NCIB that we issued and announced back in November of last year.
Okay. Great. I'm sure that'll make investors happy. Maybe my next question is on cost. Maybe a question for you once again, Andrew. Are sustaining costs lower than expected in Q1, in part due to higher costs related to the commissioning phase of Media Luna not being recorded until Q2? Could you remind us what are some of those kind of hopefully one-time sort of commissioning costs that are included in this higher cost? And confirm that it is indeed one-time or short-lived, and so really just confined to maybe Q2? I think you had answered that question in your prepared remarks a little, but I just want to confirm.
Yeah, no, that's right. I mean, really, the cost pressure that initially we're expecting to flow through our results in Q1 that will now flow through in Q2 is really just around, I would say, the inefficiencies that you get from the ramp-up of an operation. Our mining rates will start to build up through the course of Q1 and into Q2. Our plant throughput rates have built up quite nicely since we started operating the new plant post the tie-in period. Just operating those assets below their nameplate thresholds really just creates that cost inefficiency that will flow through the course of Q2 as we kind of process, produce, and sell that first Media Luna production. As you mentioned and as we commented on the call, Q2 will be, and I can confirm, will be a kind of a one-off anomaly.
The way I would think about that is when I look at consensus previously for Q1, I would really just shift whatever people's expectations were for Q1 previously. I would look to shift that now into Q2. For the back half of the year, in Q3 and Q4, I feel good about us being able to produce and have our cost profile within our guided range to be able to deliver on that guidance through the course of this year.
Great. Maybe one last question, talking about building up. As you mentioned, you had to build up the concentrate before getting a shipment from Media Luna, and that's why it rolled into April. Could you, maybe on concentrate, two questions? Number one, how do the shipments work? Are they fairly lumpy? Anything that we should be aware of, especially around quarter end, and how that could impact sales and shipment and earnings and such and such? Number two, in a world of tariffs, could you remind us where your concentrate goes and any concerns in terms of anything that we should be aware of in a world of tariffs?
Sure. We are just tackling the first question first around any kind of lumpiness in our concentrate sales. In short, I do not expect there will be lumpiness. I mean, for this year, most of our concentrate is sold to traders at the Port of Manzanillo. Every day, we have trucks that leave site that head to the Port of Manzanillo, and when the product gets there, we would close the sale. Those trucks, it might be one day, maybe we have six trucks, the next day, maybe seven. I think the lumpiness would be very, very minor, and I would expect a very steady sales stream on the concentrate side. From a tariff perspective, all of our—in short, there will be no impact from our concentrate sales as a result of tariffs, at least as the world exists today.
Our products are sold, as I mentioned, to traders in the Port of Manzanillo. They would typically sell that product into Asia. We have a smelter relationship as well where we sell into Europe. That is where we expect our end product will go to. None of our product is earmarked to go into the U.S., and I am not expecting any challenges there.
Great. Thanks once again, Jody and team, for answering all my questions, and look forward to the rest of 2025.