(Figures in millions of constant pesos)

•Operating income rose +1,651.3%, EBITDA +179.1%, Gross income +87.4%, and Sales +26.3%, all compared to the same quarter of last year.
• Billed sales reached a record level of US$377.2 million for the quarter.
• Net earnings were positive by Ps342.5 vs. a loss of Ps86.4 in the first quarter of 2003.
• In the current quarter Peñoles reports record production of refined silver, totaling a volume of 21.5 million ounces.
• The operating problems seen at Met-Mex in the first quarter of 2003 were totally resolved, and this facility was able to raise its output of refined metals as follows: lead +26.7%, silver +7.3% and zinc +2.3%.

1.- EXECUTIVE SUMMARY.

In the first quarter of 2004, gross income was Ps1,163.3, EBITDA totaled Ps829.8 and operating income was Ps555.3, all three rising sharply by +87.4%, +179.1% and +1,651.3%, respectively. Net earnings were positive by Ps342.5, compared to a loss of Ps86.4 in the first quarter of 2003.

In addition, billed sales of Ps4,163.2 (not including the results of metals and exchange-rate hedging activity) rose +26.3% over the year-earlier quarter; this amount, equivalent to US$377.2 million, marks a new quarterly dollar sales record.

The results of the first quarter show a clear trend toward improvement, evident since the start of the year, as shown below:

	Billed Sales (*) Gross income EBITDA Operating Income Net Earnings     1st. quarter 2003 $3,297.2 $620.8 $297.4 $31.7 ($86.4)     2nd. quarter 2,985.2 627.8 286.5 13.9 17.9     3rdt. quarter 3,173.4 715.1 375.2 116.8 (110.8)     4th. quarte 3,844.4 889.8 511.1 254.7 24.5     1st. quarter 2004 4,163.2 1,163.3 829.8 555.3 342.5

(*) Not including gains from metals and exchange-rate hedging.

The quarterly results were helped along by better quotations on lead (US$0.3830 per pound, +84.0% vs. the first quarter of 2003), silver (US$6.71 per ounce, +43.9%), zinc (US$0.4854 per pound, +36.2%) and gold (US$408.44 per ounce, +16.0%); along with a higher average exchange rate (Ps10.9923 per dollar, +1.8%) which favored peso-denominated sales.In addition, the peso’s 0.73% revaluation against the dollar translated into foreign-exchange gains of Ps32.1, compared to a loss of Ps175.6 in the same period of 2003.
The results were also helped by operating improvements at the Metals and chemicals Division. The lead-silver foundry and lead-silver refinery treated a higher volume of material than in the first quarter of 2003, +22.9% and +23.7%, respectively. This marked the complete resolution of problems caused by the treatment of poor-quality lead concentrates due to the scarcity of these materials. Although concentrates are still scarce, our plants have made the adjustments necessary to treat materials high in impurities (sulfur and antimony).All of this resulted in a record quarterly production volume of refined silver (21.5 million ounces, +7.3%), and a +26.7% rise in refined lead production. Furthermore, the zinc plant was operating more continuously, and although the shortage of zinc concentrates did not permit operation at full capacity, refined zinc production rose +2.8% in the quarter.In April, we signed supply contracts for materials that guarantee continuous operation of all of our plants. The treatment fees for materials entering Met-Mex improved due to the price scale used for the metals in question, so revenues per metric ton in the lead-silver foundry, the lead-silver refinery, and the zinc refinery, rose +21.4%, +4.5% and +28.4% respectively, substantially improving the profit margins of these plants.
The Mining Division reports a decline in the production of metallic content of lead (-27.6%) and zinc (-16.2%). These reductions are due in part to the shutdown of operations at the El Monte mine in September 2003, meaning this mine’s production is off the books in 2004; as well as lower production at Naica and Francisco I. Madero, due to lower grade. However, we expect these grades to improve in the medium term when new cuts are exploited.
One of the mining units that showed a substantial improvement over the previous year was Tizapa, which raised its production of zinc and gold content by +122.1% and +136.6% respectively, which lowered the cost per equivalent pound of zinc from US$0.439 per pound at 2003, to US$0.357 in 2004 (-18.7%).Higher prices on metals and efforts to bolster productivity at the Mining Division raised the gross margin for the gold mines at La Ciénega and La Herradura +40%, the silver mine (Fresnillo) +58% and zinc-lead mines, +243%.
One of the factors that adversely affected the company’s results was a continuing rise in the cost of electrical energy, which rose +12% over the first quarter of 2003, and in fact some unprogrammed power outages affected operations in this period. This underscores the reasons for our strategic decision to built our own power plant, Termoeléctrica Peñoles (TEP), to guarantee a cheaper supply of energy.
Among the main projects currently under way are the expansion of capacity at the Fresnillo mine (silver, startup slated for 3Q04), the Sabinas zinc facility (third quarter of 2004) and La Ciénega for gold (second quarter of 2005).We continued construction on the Milpillas copper project(second quarter of 2005), which is 22% complete. The power plant has completed capacity and reliability testing, meaning Peñoles plants and other facilities will be receiving power from this plant (230MW) starting in the last week of April, generating substantial savings on energy costs.
In the first quarter of 2004, we re-negotiated collective bargaining contracts with our mining-metallurgy and petrochemical unions, resulting in a 5.0% wage increase plus a 1% increase in benefits (non-compounded). These agreements allow for a continuation of harmonious relations between Peñoles and its unions.

2.- ECONOMIC ENVIRONMENT AND METALS PRICES

	1Q03 4Q03 1Q04     Inflation in the period (%) 1.32 1.64 1.58     Exchange rate (pesos/dollar):       Close 10.7671 11.2360 11.1540     Average 10.8021 11.1887 10.9923     Peso devaluation (%) at the close:     In the period +4.41 +2.83 -0.73     12 months +19.31 +8.96 +3.59     Devaluation-inflation spread (points):     In the period +3.09 +1.19 -2.31     12 months +13.67 +4.98 -0.65

	Quotations Gold ( US$/Oz) Silver ( US$/Oz) Lead ( US$cts/lb) Zinc ( US$cts/lb)     1st. quarter 2003 352.13 4.66 20.82 35.65     2nd. quarter 2003 346.74 4.59 20.70 35.09     3rd. quarter 2003 363.24 5.01 23.17 37.25     4th. quarter 2003 391.93 5.28 28.75 42.19     Average 2003 363.51 4.89 23.36 37.54     1st. quarter 2004 408.44 6.71 38.30 48.54     %Chge. 1Q004 vs 1Q003 +16.0 +44.0 +84.0 +36.2     %Chge. 4Q003 vs 4Q002 +4.2 +27.0 +33.2 +15.1     Mining Division share of sales 18.5% 42.6% 7.2% 27.8%

Highlights of the quarter:

Gold: early in the quarter, quotations were pushed up by speculative interest among fund managers and the dollar’s weakness against the euro. They were later affected by the German central bank’s announcement that it might sell off its reserves, and fund liquidations.Toward the end of the quarter, the financial markets remained focused on growing geopolitical uncertainty, particularly after the terrorist attacks in Spain and the assassination of the spiritual leader of the Hamas movement, which boosted gold prices.

Silver: prices for this metal firmed on interest by speculators on COMEX, which accumulated the largest net position in the history of that exchange.Prices were also helped by strong performance by industrial metals, because of silver’s dual nature as a precious metal and base metal. Near the end of the quarter silver prices topped out at US$7.92 per ounce, a level unseen since 1998.

Lead: prices were spurred on in thee first quarter by the strength of industrial metals as well as its own fundamentals—according to the International Lead and Zinc Study Group (ILZSG), there was a shortage of lead in 2003, compared to a glut in 2002, and there was also news that lead production in Trail operations (Teck Cominco) were affected by an explosion. Inventories continue to dwindle, which also helped prices.

Zinc: throughout the period, this metal benefited from a number of factors, among them an ongoing decline in inventories, strong performance by industrial metals and good news about its fundamentals.In the quarter, Doe Run announced that it would shut down 40% of its Goldya plant in Peru in order to lower its sulfur dioxide emissions. In addition, positive commentaries by analysts regarding strong demand for this metal in the U.S. galvanized steel industry.

3.- OPERATING RESULTS

		Production Volume
	1QO3 4Q03 1Q04     Mining Division:     Ore milled (Mton) 1,914 1,838 1,786     Stacked deposited(a) (Mton) 1,974 1,996 2,038     Gold (kg) 2,728 2,656 2,623     Silver (ton) 366.3 370.5 353.0     Lead (ton) 20,964 19,131 15,179     Zinc (ton) 62,083 57,453 52,056     Copper (ton) 2,715 2,658 3,589     (a) La Herradura: open-pit mine.     Metals & Chemicals Division:     Gold (kg) 8,014 8,144 6,813     Silver (ton) 622.2 640.0 667.5     Lead (ton) 28,836 33,798 36,535     Zinc (ton) 55,048 58,197 56,341     Copper (ton) 1,658 2,224 2,346     Cadmium (ton) 194 247 234     Bismuth (ton) 246 266 251     Sodium sulfate (ton) 145,100 150,500 149,500     Magnesium oxide (ton) 7,125 16,670 11,873     Ammonium sulfate (ton) 41,517 47,216 57.929     Magnesium sulfate (ton) 6,300 6,850 7,300

Mining Division (metallic content in concentrates and other materials):
*Change 1Q04 vs. 1Q03:
- Gold (-3.9%): shutdown of Las Torres in the third quarter of 2003 due to depletion of reserves, and lower grade at La Ciénega.
- Silver (-3.6%): shutdown of Las Torres.
- Lead (-27.6%): lower grade at Naica, Francisco I. Madero and Sabinas.
- Zinc (-16.2%): lower grade at Francisco I. Madero and Naica, and shutdown of El Monte in the first quarter of 2003 due to depletion of reserves.

*Change 1Q04 vs. 4Q03:
- Silver (-4.7%): lower milling at Fresnillo, Naica and Tizapa, and lower grade at Tizapa and Naica.
- Lead(-20.7%): lower milling and grade at Naica, and lower grade at Francisco I. Madero and Sabinas.
- Zinc (-9.4%): lower grade and milling at Tizapa and Naica, and lower milling at Francisco I. Madero.

Metals Division (production of refined metal):
*Change 1Q04 vs. 1Q03:
- Gold (-15.0%): lower receipts of semi-processed materials rich in content.
- Silver (+7.3%): higher entries of content in third-party concentrates at the lead foundry.
- Lead (+26.7%): higher entries of bullion from third parties at the lead-silver refinery, and reduction of inventories.
- Zinc (+2.3%): higher entries of content in third-party concentrates at the zinc refinery.
- Sodium sulfate (+3.0%): continuous operations.
- Magnesium oxide (+66.6%): higher demand.
- Ammonium sulfate (+39.5%): lower receipts in 2003 of solution from the lead foundry at Met-Mex, and a higher utilization factor.
- Magnesium sulfate (+15.9%): because of higher crystallization potential of brine at the solar evaporation dams.

*Change 1Q04 vs. 4Q03:
- Gold (-16.3%): lower direct entries of concentrates rich in this metal at the refinery.
- Lead (+.8.1%): due to problems in 2003 relating to impurities in the materials received.
- Zinc (-3.2%): lower receipts of domestic concentrates.
- Magnesium oxide (-28.8%): because production was adjusted to market demand, primarily for refractory and caustic magnesium.
- Ammonium sulfate (+22.7%): due to higher receipts of solution from the Met-Mex lead foundry
- Magnesium sulfate (+6.6%): because of higher crystallization potential of brine.

4.- FINANCIAL RESULTS

A) Comparison of results 1Q04 vs.1Q03:

	(Millions of pesos) 1Q04 1Q03 Chge. ($) % Chge     Net sales (*) $4,067.3 $3,192.1 875.1 27.4     Gross income 1,163.3 620.8 542.5 87.4     Gross margin 28.6% 19.4%     EBITDA 829.8 297.4 532.5 179.1     EBITDA margin 20.4% 9.3%     Operating income 555.3 31.7 523.6 1,651.3     Operating margin 13.7% 1.0%     Net income 342.5 (86.4) (428.9) n/a      Net margin 8.4% (2.7%)

(*) Includes metal and exchange-rate hedging gains.

The primary changes are discussed below:
Higher net sales, +Ps875.1 (+27.4%) from Ps3,191.9 to Ps4,067.3; this change was due to:

a) Higher prices, +Ps865.1, on practically all products sold;
b) Higher sales volume, +Ps114.0, due to increased sales of silver, lead, zinc and magnesium oxide, as well as third-party concentrates in the Mining Division, which made up for lower sales of gold caused by reduced availability of the product;
c) Higher average exchange rate +Ps48.8;
d) Lower losses from metals and exchange-rate hedging, +Ps9.4; and
e) Effect of restating the 2003 figures in constant pesos of the current period, -Ps162.2.

In dollar terms, net sales totaled US$368.5mn, made up of a record level of billed sales, ps377.2, and foreign-exchange losses totaling US$8.7mn.

The higher cost of goods sold, +Ps332.6 (+12.9%), was the result of:

a) Higher production costs, +Ps73.1, because of a rise in the cost of energy (higher unit costs of coke and electricity), higher costs of direct materials at the Mining Division, higher cost of raw materials at Fertirey, and contractors hired to expand the tailing dams at Fresnillo and Francisco I. Madero, and to expand capacity at Fresnillo;

b) Higher cost of metal –net of treatment fees- +Ps292.4, mainly due to higher prices and a higher exchange rate on metals purchased from outside parties; and

c) inventory movements, consolidation and restatement effects -Ps32.7.

Due to the rise in net sales (+Ps875.1) and a lesser increase in the cost of goods sold (+Ps332.6), gross income rose to Ps1,163.3, +Ps542.5 (+87.4%), bringing the gross margin (in proportion to sales) from 19.4 to 28.6 percent.

Operating expenses –not including depreciation- totaled Ps333.42, +Ps10.0 higher (+3.1%) because of:

* Higher exploration expenses, +Ps7.5 mainly in connection with projects at Fresnillo, La Ciénega and La Herradura; and

* Higher SG&A expenses, +Ps2.5, in the area of communications and information technology, due to the renewal of software packages and satellite maintenance.

As a result of the rise in Gross income, which more than made up for the slight rise in operating expenses, EBITDA of Ps829.8 was higher by +Ps532.5 (+179.1%), raising the EBITDA margin (as a percentage of sales) to 20.4%, well above the 9.3% reported in the first quarter of 2003.
Total Financing Cost was Ps5.2, -PS206.4 below the year-earlier figure; this change breaks down as follows:

a) Change in the foreign-exchange results, -Ps207.7. In 2004 this result was a benefit of Ps32.1 compared to a loss of Ps175.6 one year earlier. Foreign-exchange losses in this quarter were driven by the peso’s appreciation of Ps 0.0820 against the dollar, compared to a devaluation of Ps 0.4546 in 2003, affecting the net dollar liability position;

b) Higher interest expense, +Ps3.8; and

c) Lower monetary position gains, -Ps2.8.

On the “other expenses (income)” line we report an income of Ps19.1 compared to an expense of Ps7.1 the year before. The income in this most recent period was due mainly to the sale of shares in Minera Metalline, a company with which Peñoles had an agreement to explore a zinc deposit in Coahuila; the recovery of property tax; an interest paid as a penalty by operators of Termoeléctrica Peñoles for the delay in startup.

Net allocations to the income tax and profit-sharing reserve were a charge of Ps199.3, compared to a benefit of Ps53.4 in the same quarter of last year. This change was due to pre-tax earnings of Ps569.3 in 2004, while the result was a loss of Ps181.3 in 2004.

Equity in the results of associates dropped by -Ps49.7, primarily because of lower profits by the companies in which Peñoles owns a minority stake.

The minority interest line shows a gain of Ps26.7, compared to Ps6.9 in the year-earlier period. The higher gain is the result of better operating results at the companies in which Peñoles has minority partners, primarily the result of increased metal quotations.

In dollar terms, net sales were US$328.6 million (+16.8%) made up of sales of US$336.4 -a quarterly record- and metals and exchange-rate hedging losses of -US$7.8 million.

B) Comparison of results for 1Q04 vs.4Q03:

	(Millions of pesos) 1Q03 4Q03 Chge. ($) % Chge.     Net sales (*) $4,067.3 $3,755.5 311.8 8.3     Gross income 1,163.3 889.8 273.5 30.7     Gross margin 28.6% 23.7%     EBITDA 829.8 511.1 318.7 62.4     EBITDA margin 20.4% 13.6%     Operating income 555.3 254.7 300.6 118.0     Operating margin 13.7% 6.8%     Net income 342.5 24.5 318.0 1,298.0     Net Margin 8.4% 0.7%

(*) Includes metal and exchange-rate hedging gains.

The primary changes are discussed below:

Net sales of Ps4,067.3 were +Ps311.8 higher (+8.3%); this change was due to:

a) Higher prices, +Ps501.3, on practically all products sold;
b) Lower sales volume, -Ps95.7, primarily of gold caused by reduced availability of the product because of lower entries;
c) Higher average exchange rate(Ps10.9923 vs. Ps11.1887 per dollar) -Ps60.8;
d) Higher losses from metals and exchange-rate hedging, +-Ps7.0; and
e) Effect of restating the 2003 figures in constant pesos of the current period, -Ps26.0.

In dollar terms, net sales totaled US$368.5mn, made up of a record level of billed sales, ps377.2, and foreign-exchange losses totaling US$8.7mn.

The higher cost of goods sold, +Ps38.4, was the result of:

a) Higher cost of metal –net of treatment fees- +Ps93.7, mainly due to higher prices and a higher exchange rate on metals purchased from outside parties due to a lower tonnage treated at the lead and zinc refinery;
b) Lower production costs, -Ps15.1 (-1.1%), because of lower costs on natural gas, lower maintenance expenses, and lower operating materials costs for the Mining Division; and
c) inventory movements, consolidation and restatement effects -Ps40.2.

Because the increase in sales, which was +Ps311.8, outran the rise in the cost of goods sold, which was +Ps38.4, gross income moved up by +Ps273.5 and the gross margin (as a percentage of sales) rose from 23.7 to 28.6 per cent.

Operating expenses –not including depreciation effects- came to Ps333.4, dropping -Ps45.2 due to:

* Lower exploration expenses, -Ps20.9, primarily at La Ciénega and Minera Pecobre; and
* Lower SG&A expenses, -Ps24.3 because of reduced personnel costs and lower sundry expenses.
With a higher gross income (+Ps273.5) and lower operating expenses (-Ps45.2), EBITDA was Ps829.8, rising +Ps318.7 (+62.4%), and the EBITDA margin went from 13.6 to 20.4 percent.

Because of the growth in EBITDA (+Ps318.7), offset in part by higher depreciation charges (+Ps18.0), operating income rose +Ps300.6, putting the corresponding margin at 13.7 percent.

Total Financing Cost was Ps5.2, compared to Ps125.1 in the prior quarter; this change(-Ps119.9)breaks down as follows:
a) foreign-exchange gains of Ps32.1, compared to a loss of Ps97.2 in the fourth quarter of 2003. The income in this quarter was due to the peso’s appreciation (Ps0.082 per dollar), which affected the company’s net dollar liability position;
b) Higher interest expense, +Ps1.9; and
c) Lower monetary position gains, -Ps7.4.

The “other expenses” line reflects an income of Ps19.1, compared to a charge of Ps59.6 in the preceding quarter.The 2004 gain was primarily the result of the sale of shares in Minera Metalline, a company with which Peñoles had an agreement to explore a zinc deposit in Coahuila; the recovery of property tax; an interest paid as a penalty by operators of Termoeléctrica Peñoles for the delay in startup. The 4Q03 charge stemmed from an adjustment in the book value of some property, plant and equipment.

The income tax and profit sharing provisions (net) totaled Ps199.3, with the charge rising +Ps157.4, primarily due to higher pretax income (Ps499.3).

Equity in the results of associates totaled Ps0.8, declining by –Ps12.3, primarily because of lower profits by the companies in which Peñoles owns a minority stake.

The minority interest line shows a gain of Ps26.7, compared to Ps15.1 in the year-earlier period. The higher gain is the result of better results at Minera Tizapa (higher zinc quotations), lower exploration expenses at Minera Pecobre, and lower non-production costs at Rey de Plata.

5.- PROJECTS

During the year, Peñoles continued work on priority projects, including:
*Milpillas (copper mine/Sonora): work continued on deepening the access ramp (to date it has reached a depth of 3,273 meters) and deepening the extraction shaft (we have advanced 477 out of a total of 600 meters), as well as preparing the mine and detail engineering. We placed orders for the most important equipment, including the extraction winch, electrical substation, crushing section and extraction by solvent section, among others.During the year we crossed ore in the first level of the mine’s development.The total investment in this project is estimated at US$203.0 million, and it is expected to begin operations in the second quarter of 2005, with a production capacity of 55,000 metric tons a year of cathode copper. To date, we have invested US$55mn, and it is 22% complete.

*Termoeléctrica Peñoles (TEP): This project is to build a dedicated power plant, developed by the French company Alstom and the U.S. firm Sithe.Investment in the project will total US$320.00 million, and work began on January 1, 2001. The project has a capacity of 230 MW of electrical power.Construction of this plant is complete, and startup is now expected for the last week of April.This thermo-electric plant will guarantee the supply of electrical energy and reduce the volatility of energy costs per Kwh.Ownership of the plant will revert to Peñoles after 20 years.

*La Ciénega (gold/Durango): Construction of an extraction shaft to support the future growth of these operations and reduce extraction costs, increase productivity in the movement of personnel and equipment, and other improvements.At the close of the quarter, this project was 81.6% complete, and is slated for startup in the first quarter of 2004. Investment will total US$3.1mn at the conclusion of the project.

Fresnillo (silver/Zacatecas): expansion of milling capacity from 4,500 to 7,000 metric tons a day, with an investment of US$22.8mn. The expansions are to conclude in the third quarter of 2004.This project will raise annual production from 27.2 to 42.3 million ounces, while reducing production costs by 4.7%.

La Herradura (gold/Sonora): in the fourth quarter of 2003, we began an additional expansion of capacity for the leaching yards, at an investment of US$2.5mnThis project is expected to start up operations in the fourth quarter of 2004.

*La Ciénega (gold/Durango): a 34.6% expansion of milling capacity, from 520,000 to 700,000 metric tons a year. This expansion will increase gold production from 134,200 to 141,700 ounces a year.It will require a total investment of US$14.4mn and the project is expected to start up in the second quarter of 2005.

Sabinas (zinc/Zacatecas): expansion of milling capacity by 21.0%, from 950,000 to 1,150,000 metric tons of ore per year. This expansion will bring annual production up to 33,000 metric tons of zinc and 4.3 million ounces.It will require an investment of US$3.7mn and construction is expected to conclude in the third quarter of 2004.

6.- LABOR RELATIONS

In the first quarter of 2004, we re-negotiated collective bargaining contracts for our primary mining units and productive plants, reaching agreements that were beneficial to both our workers and the company. In revisions of contracts with our mining-metallurgy and petrochemical unions, we negotiated a 5% wage increase plus a 1% increase. Relations between Peñoles and the unions that participate in its productive sectors continue to be conducted in a climate of harmony and mutual understanding.

7.- MEETINGS OF SHAREHOLDERS AND THE BOARD OF DIRECTORS

Pursuant to a resolution passed in the General Ordinary Stockholders’ Meeting of April 15, 2004, the Board of Directors was given the authority to apply the profits accrued as of December 31, 2003.

In a meeting of the Board of Directors held on the same day, members agreed to pay a cash dividend of Ps0.25 per share on each of the 297,475,747 shares issued and outstanding, payable Monday, April 26 of 2004.