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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Okay. Hello, and welcome to the Victoria Gold Video and Conference call to discuss the company's second quarter 2023 financial results. Listeners are encouraged to read Victoria's second quarter 2023 audited financial results report and the MD&A available on both the company's website and SEDAR. Joining us on the call today are John McConnell, President and CEO; Marty Rendall, Chief Financial Officer; and Mark Ayranto, Chief Operating Officer.
Please note that listeners and viewers will be muted while management provides a short review of the results. After the review, there will be an opportunity to ask questions. To register a question during the presentation, please do so in the chat function, and the question will be addressed during the Q&A session. Also note that this video call will be recorded and available for playback on the company's website.
We will be making forward-looking statements on this call and encourage participants to see our disclosure documents, including our corporate presentation, AIF and MD&A and the cautionary notes therein, which can be found on SEDAR and the company's website. I'll now turn the meeting over to John McConnell, Director and CEO.
Good morning, everyone. Thank you for joining the call. I'll provide a brief summary of the second quarter and then pass the call to Marty and Mark to provide more details. First and foremost, starting with safety. Our excellent safety performance continued in the second quarter. We once again had no lost time injuries, and our TRIF for 2023 was 0.28 at the end of the quarter. Our focus on health and safety has been evidenced by our recent response to the East McQuesten wildfire in Yukon, as our on-site leadership team and employees have responded admirably to the challenging dynamic situation with no significant safety incidents occurring.
As a result of a separate fire, the Talbot Creek tier, the nearby village of mail has been evacuated. Having just went through the challenging and stressful task of evacuating a large group of people, our thoughts are certainly with the Mayo community. Operationally, the second quarter of 2023 saw the Eagle Gold mine continue its strong operational performance trending in line with our guidance ranges for production and costs.
Unfortunately, in the past 2 weeks, wildfire activity in the Yukon has forced us to proactively evacuate some employees and reduce staffing levels at site. Although the risk to Eagle has been reduced in recent days due to favorable conditions and the superb response of the Yukon Wildland Fire Management team, reducing staff levels and lower mining crushing and stacking rates will impact H2 production and costs.
However, our 2023 guidance ranges are unchanged for both production and costs. We continue our exploration program in Q2, notably drilling at our Raven deposit with 2 drill rigs, following up on strong results from the 2022 exploration at Raven. We look forward to sharing the results of the 2023 exploration drilling program with you in coming weeks. I will now turn the call over to Marty Rendall, our Chief Financial Officer.
Good morning. I will briefly discuss our financials before passing it back over to Mark to review operations. Currency will be in Canadian dollars unless specifically mentioned otherwise. During the second quarter of 2023, we sold about 45,000 ounces of gold, resulting in revenue of approximately $119 million. That is about 71% higher than the $69 million in revenue that was generated during the second quarter of 2022. The revenue differential is primarily the result of increased gold ounces sold, although both a higher gold price and a favorable Canadian-U.S. dollar exchange rate contributed to the improved revenue.
Cost of goods sold was $75 million during the quarter compared to $30 million in the second quarter of the previous year. The large increase is principally due to the higher number of ounces sold. Recall that our operating costs and cost of goods sold are based on the number of ounces removed from inventory, primarily the heap leach pad. Cost of inventory is based on the average production costs for all gold held within inventory. Along with the higher number of ounces sold, cost of goods sold was also higher in the current quarter due to higher cost per unit as a result of continued high inflation.
Although we have seen lower fuel costs year-over-year, most other cost inputs, including labor, parts and contractors have continued to trend higher with inflation. The maintenance costs within both the mining and processing areas were also higher during the quarter as the company focused on reducing preventative maintenance backlogs. The higher gold sales and revenues, combined with the higher costs year-over-year resulted in an increase in gross profit and operating earnings.
When we look at some of the nonoperational impacts on net income, we see higher interest expense year-over-year due to higher interest rates, higher gains on foreign exchange due to the impact of the strengthening U.S. dollar on our U.S. dollar-denominated debt and lower gains on derivative instruments due to the changing prices of the underlying instruments, which include gold price, exchange rate, interest rate and the Victoria Gold share price.
Income before tax for the quarter was $4.7 million, slightly higher than the $4.2 million income achieved during the second quarter of 2022. Taxes included current and deferred income and mining taxes increased year-over-year, contributing to a small year-over-year reduction in quarterly net income after tax. The second quarter 2023 net income after tax was $16 million or $0.24 per share. At the end of June 2023, the company held cash and equivalents of $28 million compared to $21 million at the end of December 2022.
I'd like to remind listeners that we do use our revolving credit facility to manage our treasury. Therefore, our cash balance generally stays constant while debt will fluctuate to match our liquidity needs. Importantly, working capital at the end of June 2023 was positive $157 million, and that's compared to $95 million just 6 months earlier at the end of December 2022. This material increase in working capital is substantially the result of reducing accounts payable.
During the most recent quarter, total capital expenditures were $18 million, while 6 months year-to-date total capital expenditures were $35 million. This was comprised of sustaining capital, capitalized stripping and growth capital and exploration. A detailed breakdown can be found within our MD&A.
I'll now review our non-IFRS performance measures. Once again, the detailed numerical breakdown, along with commentary on the calculations can be found within our MD&A. During this section, I'll use U.S. dollars for unit-based numbers to allow for uniform peer comparison. The average realized price per ounce of gold sold during the most recent quarter was USD 1,981. This compares to the second quarter of 2022, where we realized $1,901 per ounce.
Cash cost per ounce of gold sold during the most recent quarter were USD 1,253. This compares to the second quarter of 2022, where we realized USD 828 per ounce. All-in sustaining costs per ounce of gold sold during the most recent quarter were USD 1,466 and this compares to the second quarter of 2022, where we realized USD 1,371 per ounce.
Free cash flow before adjustments during the most recent quarter was CAD 14 million. This compares to the second quarter of 2022, where free cash flow before adjustments was CAD 18 million. Adjusted free cash flow during the most recent quarter was negative CAD 14 million due to working capital adjustments, including repayment of accounts payable and the settlement of gold call options. This compares to the second quarter of 2022, where adjusted free cash flow was CAD 1 million.
EBITDA, earnings before interest, taxes, depreciation and amortization during the second quarter was CAD 52 million or CAD 0.79 per share. This compares to the second quarter of 2022, where EBITDA was CAD 44 million or CAD 0.69 per share. I'll now turn it over to Mark Ayranto, Chief Operating Officer.
Good morning, everyone. In the second quarter of 2023, the Eagle Mine produced approximately 46,000 ounces of gold. It's our highest ever Q2 production result and a 42% increase year-over-year. In the first 6 months of this year, we produced a total of 83,000 ounces of gold, which positions us well to achieve our 2023 production guidance of 160,000 to 180,000 ounces. We stacked 2.5 million tonnes of ore on the heap leach pad, grading at 0.74 grams per tonne in the second quarter, and that's for a total of 4.6 million tonnes, grading at 0.80 grams per tonne stacked in the first 6 months of the year.
The mining rate in the second quarter was 49,000 tonnes per day, and that's slightly higher than the 48,000 tonnes per day average in Q2 of 2022. It should be noted, the mining rates are expected to increase in the second half of 2023, and this is primarily due to the availability of waste [indiscernible] combined with shorter haul distances [indiscernible].
Our heap leach pad performance remained strong for the second quarter. Recoveries are continuing to trend in line with our forecasted levels. And notably, we saw an approximate 7,000 ounce reduction in our recoverable gold inventory from the heap leach pad as ounces stacked in prior quarters were recovered [indiscernible].
Grade stack in Q2 remained in line with the Eagle reserve model, and it continues to reconcile well to actual production results. As demonstrated by our Q1 and our Q2 operational results, our production levels and asset availability have improved significantly year-over-year. That said, we've now turned our focus to cost optimization to improve the margin on our produced ounces. We have a number of initiatives underway, which we expect will improve our cost profile in the coming quarters.
Briefly touching on some of these initiatives. They include drilling and blasting practices in the pit to improve rock fragmentation and thereby reducing processing costs, all-road design improvements to help minimize congestion, optimize waste haul profiles resulting in faster cycle times and reduced mining costs. We're focused on a reduction in contractor support as our staffing turnover has improved and we've improved maintenance practices to reduce unplanned downtime. All of these initiatives are focused on improving production rates and asset availability will reduce in unit costs at Eagle.
And finally, as John noted at the beginning of the call, the recent wildfire activity in the vicinity of Eagle has impacted our mining and stacking rates so far in the third quarter. Despite this impact to our production, we are encouraged by the response of our entire team, in particular, our on-site employees and the wildland fire management team as we've adapted to a challenging and quickly evolving environment. Our highest priority during this time has been the safety of our employees, and we look forward to getting back to full production levels imminently. John, back to you for concluding remarks.
Thanks, Marty and Mark. In summary, the second quarter of 2023 continued our strong operational performance. Our team has worked hard to implement a number of initiatives that have resulted in impressive year-over-year improvements in production. Despite this, we see further operational improvements on the horizon, in particular, as we work to reduce our operating costs.
As a final note, I would like to again and express our thanks for the excellent response of both the Yukon Wildland Fire Management team and our employees to the wildfire activity in Yukon this season. Thank you all for listening, and we will now open the call for Q&A.
[Operator Instructions]
And John Andrew Mikitchook has a question.
Just 2 questions. First on this wildfire or the fires. It looks like you guys feel like the mine itself is now in a better situation. What about the infrastructure, the power line and the reality is that you guys use Mayo as a big hub for people and equipment and supplies coming in. How does that look in terms of exposure for you?
Yes. I'll start, and maybe Mark will jump in with a few further comments. I was on site yesterday. I had the opportunity to get up to the helicopter and fly the fire, and I would describe it as now in control. The Wildland Fire Management team did an excellent job where they utilized control burnings really to minimize the opportunity for the fire to get too close to the Eagle operation.
You mentioned the access road and the power line. We also use douser to clear along the road and the power line. And we've reenergized the line now and there were no impacts. So I would describe the -- what's happening now with Wildland Fire is they're mopping up a few hotspots. There's still one helicopter on site, and they have infrared cameras that they use a couple of times a day to identify hotspots and then the helicopter buckets water onto those hotspots and guys on the ground get in there with hoses and ensure that the fire is out completely.
Anything more to add, Mark?
Yes, John, I think operationally, you nailed it. As you mentioned, the power line has been reenergized as of yesterday with us that voluntarily took it offline. Andrew, to your second question regarding the community in Mayo, certainly, we appreciate the complexity of evacuating people. We're doing everything we can primarily to support the efforts on that fire, really minimize the use of hotels in Whitehorse or moving people around to make sure there are hotels available, bussing our people up so that we're not utilizing the resources at the airport. Say, the discussions we've had with the community have been excellent and we certainly hope that gets resolved quickly for -- particularly for the [indiscernible].
And Mark, maybe while I have you. My second question was just around the transition, I think that you mostly talked about now focusing on optimization and cost control or cost optimization, I guess is the wording you used. Kind of in the first half of the year, I know you guys' public comments have been around improving availability and functioning of the mine. Would you say that that's mostly been delivered? Or is there -- that comes hand-in-hand with this cost optimization books that you're now just discussing?
Yes, it's a good question, Andrew. Thanks. I would say we have made some huge strides. You can see that in our production numbers. And -- but certainly, a cost -- it's a cost efficiency as much as cost reduction, and they do go hand in hand. If you can get your efficiency up, you can bring down your unit rates and ultimately drive down cost. But it takes a bit of time, and we focus primarily on getting those production reads up.
As Marty mentioned, getting our backlogs in better condition. Some of the initiatives in the pit like getting wider roadways and maintaining those drill and blast optimization. All of those things do reduce costs, but largely drive efficiency, which brings you unit rates down. So I would say they're definitely hand in hand. We've made some really big improvements, and we're probably 80% of the way there on our -- 85% on getting our production out. And now it's about just getting the steady state efficiency in place. So I think you'll see that a bit over the next Q3, and we're in really good shape to finish off the year within our stated guidance.
And maybe, if everyone hears me. One last quick last question, that the impact from the wildfires, should we assume it's mostly a Q3 thing at this point in time? It's hard to imagine this impacting Q4? Or is there some sort of follow-on effect from impacts in this quarter somehow going into next quarter?
No. I think it's just this quarter, Andrew. And fires are a fact of life in the Yukon these days as we've seen in the rest of the country as well. So I can't emphasize enough that there could be other fires. But certainly, right in the vicinity of Eagle, we've done a great job of clearing anything that could burn and put the mine at risk.
And [indiscernible] has a question.
Yes. It's a question for Marty -- well, for everyone. I know your cash costs flow through your inventory and through the -- I guess, what gold is on your heap leach pad, your cash costs have still gone up from Q1 to Q2. I would have thought and most of the analysts thought they were going to go down. Is this a function of, I guess, the issues you had late last year? What is the lag time on seeing these cash costs come down?
Yes. Steve, I can touch on that. And you're exactly right, there is certainly a lag on our cash costs. So the cash cost in this quarter -- of all-in sustaining costs were USD 1,466 and the cash costs go into that. That's a function of all the ounces on the pad. So we have over 100,000 ounces in inventory. Most of that is on the heap leach pad. And that will be from our stacking really over the last year, more so over the last 6 months, but it will include certainly some costs from late last year, which were quite high.
And so when we see cost improvements or costs go the other way, it can take 3, 6 to 9 -- up to 9 months to really see the full effects. So we're still being hit in Q1 and Q2 of this year by our high cost in Q3, Q4 of last year. So if we can achieve some of the cost savings that we expect that Mark touched on, and some of those have been underway for months now, some of them are newer. But we do expect our costs to fall later in 2023, but it will take some time for those to flow through to our cash costs and all-in sustaining costs.
So if those initiatives bear fruit, I would expect our cash cost to start falling in Q4 this year; Q1, Q2 next year. So in Q3, our costs are likely to stay fairly high, probably near where they were in Q2. And again, we'll see the benefits of some of these cost initiatives in Q4 and then into next year.
But your operations are running better as sort of the numbers that I see. Let's say -- forget the accounting. If you're looking at overall cash spend, okay, not working capital spend, but overall spend versus ounces produced, are you seeing that transition now to a lower cash cost as opposed to seeing it later coming through the financial statement?
Our cash costs are fairly steady right now. If we look at how much we're spending on an absolute dollar amount month-over-month, they're fairly steady. And so we do expect again that they can come down and that they will come down as the initiatives bear fruit. But right now, we expect Q3 to be similar to Q2 on a total cash cost spend. We expect ounces to be relatively similar as well. So again, going forward, Q2 is a good bar in the short term, but we do think it's something we can come under in a little more time.
Maybe I'll just add, Marty and Steve, to your point, we are certainly, as mentioned earlier, working on catching up on backlogs. We did a bit more maintenance work than we initially anticipated, and that's to help ensure availability, which will ultimately drive the efficiency. So we're -- we've done a lot of that work. We've got a bit to go. And once we get caught up on all those things, we'll start to see -- I expect subject to inflation or other things, we'll start to see some modest drops and some bigger increases in production.
So you need the production increase to drop the divider, I guess, -- the denominator?
Yes, it is that. And like I said, once we get caught up on backlog, if we stay up on top of it, that will help with the ultimate spend as well on a quarter-over-quarter basis.
What's the opportunity in the dollar spend? Can you reduce dollar spend in aggregate 5%, 10%, 15%? And what can you increase production by 5%, 10%, 15%? Can you speak to both those, Mark?
Well, pass the cost on to Marty. I would say, production-wise, we -- there's easily a 15% to 20% improvement that we can see and that we're working towards.
And total dollar spend, Marty?
Yes, Steve, I'm not going to get into that on the call here as we said we need some time and we're looking into it. But I would need -- if we're going to put that in, it's not on a conference call, it'd have to be in an MD&A or press release. So we think there's some savings to be had, but I can't get into the exact numbers.
Do you have a big use of contractors that are very expensive right now?
My quick answer is, yes. We do have a significant usage of contractors, and yes, they are very expensive. That being said, I think we've made some good strides over the first 6 months, and we've reduced our contractors in a number of areas, but that's certainly one of the core area we're looking at further reducing over the next 6 months. So, yes, reduction of contractors is one of our upsides when it comes to costs, for sure.
Okay. And Marcus Giannini has a question.
Marcus here with Wainwright. You pretty much answered one of our questions on cash costs and where you expect them to trend throughout the remainder of the year. So changing gears a bit. You talked about seasonality with the first half of 2023 yielding lower production into the second half. This has been reduced in 2023 from '21 and '22. So thinking longer term, is there a good reason why in the not-too-distant future, the seasonality disappears altogether since you've spread out maintenance? Or are there other factors at your control such as weather or the December holidays? Just sort of thinking looking at 2024 and beyond here for some guidance.
Yes, I'll start Marcus and Mark can either correct me or agree with me, but we'll always have some seasonality because during the winter, we're not able to bleach side slopes. We only do that once the weather is above the freezing temperature. So you'll always see a little bit of seasonality. But you're quite right in terms of tonnes stacked on the pad, we hope to get that to reduce the seasonality of that. But you'll always see in terms of the gold production, a little bit of seasonality.
Okay. That's helpful. And like I said, our other question has been answered, so I appreciate it.
Okay. If anyone else has any questions, please raise your hand.
I think there are some questions in the chat, Lenora.
Sorry, John, I don't see them. Sorry, John, if you seem them?
Yes. So there's a question about preventive maintenance backlogs. And how large are they in dollar terms? Why do they still exist? When do you expect to catch up? Mark, do you want to address that?
Yes. I would say backlogs always exist. So it is not uncommon. I think where we were focused over the last 6 months are getting the critical backlogs that are bringing us down unplanned and otherwise affecting production. So that's just a function of operating. Certainly, backlog is built up over a period of time for a bunch of reasons we've discussed in the past. And it just takes some money and some dedication, including some contractor support to get in front of those. And I think the bulk of our backlogs are in terms of dollar figures are behind us. We still have some work to go, so we'll see some of those trickle out and then we get ourselves into steady stage.
The next question is best case scenario, when will normal operations restart at Eagle? I guess I should point out that even though we stopped mining and stacking during the evacuation, we've continued to reach and produce gold. Crews were arriving back on site yesterday when I was there, and I would expect we'll get back to mining and crushing and stacking over the course of the next 2 or 3 days.
Let me see if there's any more questions here. Have all Raven results from last year being examined and when do you expect to start seeing results from this year's drilling?
Yes. We've looked at everything from last year, certainly, and we've got a few more holes to drill this year. And I would expect we'll have all the results published sometime before the end of September.
I think that's all the questions in the chat. Anybody else have any further questions?
Yes. [ Hans-Christoph ] has a question.
Go ahead, Hans.
Good morning for Vancouver. Can you hear me?
We can.
Okay. John, the first question is do the company has an insurance who pay for the interruption of the production. And the second question, Marty told us the development of the cost of gold production. I think what is interesting too, when do you think we have a free cash flow adjusted, which is positive?
Good questions, and I'll let Marty address both the insurance and the costs.
Sure. First of all, on the insurance. We do have insurance that does cover fire, although we have deductibles that are fairly high. And so on our business interruption insurance, that's got a deductible of 15 days. We've been down due to the fire for less than 15 days. So we will not be using our business interruption insurance, which would cover the lost gold over that time. There's also insurance for fire prevention and its got a deductible of approximately $500,000.
Our total cost spent due to the fire is somewhere between $500,000 and $1 million. So I don't expect we will use that insurance either, but we'll be looking at that going forward once we tabulate all of the costs. So I don't think we'll be using our insurance. If the fire situation was worse, we could have used it.
On the free cash flow, you're asking about forward free cash flow after adjustments. It was negative this quarter. It was negative due to call options, which are done. We don't expect further losses in that manner. And we also had significant negative free cash flow due to paydown of accounts payables on working capital. Our payables is down to a fairly low amount at the end of Q2. So we don't expect any negative free cash flow from that. And so I think there's a very good chance that we have positive free cash flow after adjustments in Q3.
Okay. Thank you, everyone, for your questions. And as there is no further ones, we will now close the session. Wishing you a great day.
Thank you.
Thanks, everyone.
Bye, everyone.