(Figures in millions of constant pesos)

• In the first quarter of 2006, net income rose +100.9% over the first quarter of 2005, operating income grew +73.3%, EBITDA +52.5% and gross earnings +39.8%. All of these mark record levels in the company's history.
• Metals prices rose during the quarter, as follows: zinc +70.3%, silver +38.8%, gold +29.7% and lead +26.9%.
• The results of the quarter included an extraordinary gain of Ps949.8 from the sale of the Pinos Altos gold project.
• Production of refined gold totaled 349,800 ounces, a quarterly record.

1.- EXECUTIVE SUMMARY

In the first quarter of 2006, the company reported billed sales-–not including the results of metals and exchange-rate hedging--totaling Ps7,171.1, +40.5% higher than the year-earlier period. Additionally, gross earnings were Ps1,961.8, rising +39.8%, EBITDA was Ps1,503.1 a gain of +52.5% and operating income was Ps1,214.4, up by +73.3%. Net earnings were Ps1,141.0 comparing very well against the Ps567.9 reported one year earlier, a substantial +100.9% increase.All these results are quarterly highs in the company's history.

In dollar terms, bills sales were also a record US$676.5 million, an increase of +53.9% over the first quarter of 2005. Gross earnings came to US$184.7 million, EBITDA US$141.4 million and Operating income US$114.2 million.

These changes were the result of:
(i) Higher quotations on the metals the company extracts, processes and sells, as follows: zinc +70.3%, silver +38.8%, gold +29.7% and lead +26.9%;
(ii) Higher metallic content produced in the mining business;
(iii) Higher concentrate treatment fees in the metallurgical complex; and
(iv) An extraordinary revenue of Ps949.8 from the sale of the Pinos Altos project (gold, Chihuahua) to the Canadian firm Agnico Eagle; similarly, the Mezcala gold project in Guerrero was sold in the first quarter of 2005 Ps566.9 to the American company Goldcorp. Pinos Altos was sold because the scale of the project was too small for Peñoles.

These positive aspects offset the adverse effects of (i) the peso's strength against the dollar--the average exchange rate was Ps10.5839 per dollar in 1Q06, -5.4% below the average for the first quarter of 2005; and (ii) a lower volume of material treated at the zinc refinery (-12.5%).

Other adverse effect during the quarter was the expiration of hedging contacts that brought a loss of Ps249.6 mainly because of a sharp rise in quotations on gold, silver and zinc. These contracts were taken out in earlier years to defend the company's profit margins against the risk of fluctuation in these quotations. But because the proportion or product that is not hedged is greater than the hedged portion, the company profited from the rise in metals prices in that period.

The cost of goods sold rose +34.6%, +Ps1,275.8, resulting from:
(i) Higher cost of metal purchased from third parties by the Met-Mex metallurgical complex, to complement the production of its own mines, because of a higher volume purchased and a rise in the price of that metal. Higher metal prices favored concentrate treatment fees charged from the mining companies that shipped the metal, however, due to the effect on the price scale, and this reduced the impact of higher metal costs;
(ii) Production costs up +9.6%, +Ps150.8, due to: (a) Higher energy costs (electricity, natural gas, fuel oil, diesel and metallurgical coke); (b) Higher unit cost of inputs like steel, reactives, explosives and ammonia; and (c) higher personnel costs.

Total financing cost was Ps29.8, improving from Ps47.2 in the first quarter of 2005.
The reduction was caused by gains on interest rate forwards and lower interest expense in peso terms due to a lower average exchange rate, which made up for the erosion of net foreign-exchange results, which was a loss of Ps8.1 in the quarter--caused by the peso's 2.2% devaluation against the dollar the close of the period--compared to a profit of Ps4.3 in the first quarter of 2005.

As a result of these gains, and the proceeds of the Pinos Altos sale, the income tax provision grew by +66.2%. also, due to the improved operating results, the profit-sharing provision increased by 135.2%.

As for the Participation in the Results of Associates, the greater loss was originated by the foreign exchange fluctuations in its investments; and with respect to minority net earnings, the reduction of -77,1% is due to the sale of the Mezcala gold project in the first quarter of 2005, in which the U.S. company Newmont Gold owned 44 per cent.

The following table sums up these results:

	1Q06 1Q05 % change     Net Sales (*) $6,921.5 $5,087.7 +36.0     Gross earnings 1,961.8 1,403.8 +39.8     EBITDA 1,503.1 985.9 +52.5     Operating income 1,241.4 700.9 +73.3     Total financing cost 29.8 47.2 (36.9)     Interest Expense (Income) (870.8) (530.0) +64.3     Net income 1,141.0 567.9 +100.9

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

Comparing this most recent quarter's operating results against those of the same quarter of last year, we note the following:

At the beginning of March, both the mining units and the metallurgical complex suffered from the illegal shutdown staged by leaders of the miners' union. Fortunately, two days later, unionized workers gradually returned to work because they did not support the internal conflicts in the union.

In the mining business, production of metallic context increased over the same period of last year, as follows:
(i) Silver +1.4 million ounces (+13.3%) due to increased production at the Fresnillo mine, resulting from capacity expansion.
(ii) Lead +1,915 metric tons (+13.1%) because of higher milling and grade in the bodies of ore exploited at the Naica mine, and the expansion of the Fresnillo mine. (iii) Gold +3,408 ounces (+3.7%) due to increased efficiency and recovery in the leaching pads at the La Herradura mine.

In the metals business, production of refined metal was higher than in the first quarter of 2005 as follows:
(i) Gold +97,224 ounces (+38.5%) and silver +2.3 million ounces (+10.5%) due to higher entries of content-rich materials to the lead-silver circuit. Production of refined gold totaled 349,800 ounces, a quarterly record.
In zinc, the reduction of 6,292 metric tons (-10.5%) was the result of the company's decision to move up the programmed maintenance shutdown at the electrolytic zinc refinery by one month. This is because at that time management was not sure how long the labor walkout would last, and critical equipment had to be shut down. In 2005, that maintenance was performed in April. The shutdown was held on March 3-7, and the plant then returned to its normal production capacity. The loss of production in the first quarter will thus be recovered in the second.

In addition, the Peñoles thermoelectric plant carried out its regularly scheduled maintenance on March 10- April 14. During that period, electrical energy was supplied by the state-owned Federal Electricity Commission. This increased production costs at Peñoles' operating units because CFE-supplied power costs more than the company's own generating plant.

At the close of the period, Peñoles has a total debt of US$581.0 million. As of March 31, that debt was composed primarily of the following:
(i) A private offering in 1997 for US$380.0 million, at a fixed rate of 8.39% and which will begin being repaid in 2006 through quarterly payments of US$15.2 million; and
(ii) Drafts of US$155.0 million on a credit obtained in late 2004 for construction of the Milpillas copper project, which will start up in the second quarter of 2006.

Construction of the Milpillas project was concluded in Sonora, and equipment and functional testing has been ongoing since the fourth quarter of 2005. The mine will turn out an average of 55,000 metric tons of fine copper per year in the form of cathodes. The total amount of direct investment in this project was US$217.8 million.

In the first quarter of 2006 the flow from net fiscal-year earnings totaled Ps1,237.5, an increase of +98.5% over first quarter of 2005. The main uses of those proceeds were as follows:
(i) Ps565.4 in property, plant and equipment, primarily for conclusion of construction of the Milpillas copper project; and the replacement of equipment and improvement of processes at Fresnillo, Met-Mex, Química del Rey, Tizapa and Sabinas;
(ii) An increase of Ps39.3 in working capital due to: (a) a Ps477.8 increase in inventories of metal and concentrate inventories, due to the volume received in the zinc circuit while it was shut down for maintenance and could not process the materials. As well as higher metals prices; offset by (b) an increase of Ps464.0 in the income-tax and profit-sharing reserve.

In the first quarter of 2006, unionized workers at various mines--all of them affiliated with the mining syndicate--received wage increases. After intensive negotiations, an average direct increase of 6% in wages was agreed on.

In the Ordinary Annual Meeting held April 5, stockholders approved a dividend of Ps2.0 per share on each of the 397,475,747 shares outstanding.

2.- ECONOMIC ENVIRONMENT AND METALS PRICES

	1Q05 QT05 1T06   Inflation (%):   In the period 0.79 1.59 0.87   12 months 4.38 3.33 3.42   Exchange rate (pesos/dollar):   Close 11.2942 10.7109 10.9510   Average 11.1821 10.7138 10.5839

	Gold ( US$/Oz) Silver ( US$/Oz) Lead ( US$cts/lb) Zinc ( US$cts/lb)     1st. quarter 2005 427.23 6.99 44.40 59.73     2nd. quarter 2005 427.25 7.16 44.75 57.75     3rd. quarter 2005 439.49 7.07 40.44 58.82     4th. quarter 2005 485.55 8.08 47.59 74.41     Average 2005 444.88 7.34 44.29 62.68     1st. quarter 2006 553.98 9.69 56.33 101.70     %Chge. 1Q2006 vs 1Q2005 +29.7 +38.6 +26.9 +70.3     %Chge. 1Q2006 vs 4Q2005 +24.5 +32.0 +27.2 +62.3

Quarterly highlights:

Gold: average quarterly quotations rose +24.5% over the fourth quarter of 2005. This metal high a 25-year high due to the euro's strength against the dollar, geopolitical tensions in Iran, interest on the part of mutual funds, a rise in some commodities prices, terrorist threats against the United States, and disappointment reports on the creation nonfarm jobs in the U.S.

Silver: average quotations in the quarter rose +32.0% over the immediately preceding quarter. La silver reached levels unseen in the last 22 years, due to the globalization of the Silver ETF (Exchange Traded Fund) by SEC (the U.S. Securities and Exchange Commission) in March, an even that generated substantial physical demand in anticipation of the launch of that instrument, and because of the strength of industrial metals and gold.

Lead: the average quarterly quotation of this metal rose +27.2% against the fourth quarter of last year. Prices were pushed higher by the possibility of a combination of the River Kiang in China from operations at the Zhuzhou Refinery, interest among metals funds and heavy demand from physical consumers of the metal.

Zinc: average quotations rose +62.3% over the immediately preceding quarter. Prices benefited from the shutdown of the zinc-producing plant owned by Grupo Mexico; from the rumors of a potential strike at two mines of the Volcan Mining company in Peru; the reduction of inventories on the LME (to their lowest level since July 1991); the influence of copper prices, and interest among mutual funds.

3.- OPERATING RESULTS

		Production Volume
	1Q05 4Q05 1Q06     Mining Division:     Ore milled (Mton) 1,939 2,117 2,057     Stacked deposited (a) (Mton) 2,076 1,772 1,931     Gold (kg) 2,844 3,137 2,950     Silver (ton) 331.1 380.1 375.0     Lead (ton) 14,635 16,378 16,550     Zinc (ton) 52,498 54,416 53,163     (a) La Herradura: open-pit mine.     Metals & Chemicals Division:     Gold (kg) 7,856 10,329 10,880     Silver (ton) 684.0 780.5 755.8     Lead (ton) 36,512 37,320 36,640     Zinc (ton) 59,641 64,181 53,349     Sodium sulfate (ton) 149,500 152,000 150,000     Magnesium oxide (ton) 17,558 21,090 16,430     Ammonium sulfate (ton) 47,656 51,627 52,918     Magnesium sulfate (ton) 3,450 7,200 8,200

Mining Division (metallic content in concentrates and other materials):

*Change 1Q06 vs. 1Q05:
- Silver (+13.3%): more ore milled and higher grade at Fresnillo, Sabinas and Naica and higher milling at La Ciénega.
- Lead (+13.1%): more ore milled and higher grade at Fresnillo and Naica, greater recoveries at Francisco I. Madero and more ore milled at La Ciénega.

*Change 1Q06 vs. 4Q05:
- Gold(-6.0%): less ore milled and lower grade en La Ciénega.

Metals Division (production of refined metal):
*Change 1Q06 vs. 1Q05:
- Gold (+38.5%): higher receipts of semi-processed content-rich materials at the Lead-Silver refinery.
- Silver (+10.5%): higher receipt of content in concentrates received from third parties at the lead foundry and the lead-silver refinery.
- Zinc(-10.5): reduced by the union walkout and maintenance at the zinc refinery.
- Magnesium oxide (-6.4%): Lower because of a reduced concentration of brine, and adjustment to levels of market demand.
- Magnesium sulfate (+137.7%): due to a stronger position in the domestic market.
- Ammonium sulfate (+11.0%): increase due to a reduction in acid inventories.

*Change 1Q06 vs. 4Q05:
- Gold (+15.4%): higher entries of content-rich concentrates to the Lead - Silver refinery.
- Silver: (+10.5%): higher entry of content in concentrates at the lead foundry.
- Lead (+6.9%): higher entry of content in concentrates received from the company's own mines at the Lead foundry.
- Magnesium oxide (-8.9%): lower production to adjust to sales program.
- Magnesium sulfate (-16.8%): difficulties with the supply of electrical energy and Magnesium hydroxide.
- Ammonium sulfate (+8.4%): to adjust to market demand, and due to continuous operations.

4.- FINANCIAL RESULTS

A) Comparison or results for 1st quarter of 2006 vs. 1st quarter of 2005:

	(Millions of pesos) 1Q06 1Q05 Chge. ($) % Chge.     Net sales (*) $6,921.5 $5,087.7 1,833.8 +36.0     Gross income 1,961.8 1,403.8 558.1 +39.8     Gross margin 28.3% 27.6 %     EBITDA 1,503.1 985.9 517.2 +52.5     EBITDA margin 21.7% 19.4%     Operating income   1,214.4 700.9 513.6 +73.3     Operating margin   17.5% 13.8%     Net income   1,141.0 567.9 573.1 +100.9     Net margin 16.5% 11.2%

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

The most important changes are detailed below:

Net sales totaled Ps6,921.5, an increase of +Ps1,833.8 (+36.0%) due to the following factors:
a) Higher sales volume +Ps617.5, primarily of gold, silver, lead and concentrates sold by the mining division to third parties;
b) Higher prices, +Ps1,565.8 on most of the products sold;
c) Lower average exchange rate (Ps10.5839 vs Ps11.1821 per dollar) -Ps128.6;
d) Higher losses on metals and exchange-rate hedging, -Ps234.0; and
e) Restatement of results in constant pesos of the current quarter and other effects +Ps13.1.

In dollar terms, net sales totaled US$652.9 million, made up of billed sales of US$676.4 million and hedging losses of US$23.5 million.

The cost of goods sold rose by +Ps1,275.8 as follows:
a) Higher production costs +Ps150.9 (+9.6%) due to an increase in the cost of preventive maintenance for equipment inside the mine, higher gas and electrical energy costs, personnel costs, and raw materials costs;
b) Higher metals costs--net of treatment fees-- +Ps991.3 due to higher prices and a higher volume of metals purchased from third parties, offset by a lower exchange rate; and
c) Inventory movements, restatement and consolidation effects, +Ps133.6.

Because the rise in net sales (+Ps1,833.8) was higher than the increase in the cost of goods sold (+Ps1,275.8), gross earnings were higher by +Ps558.1, bringing the gross margin (in proportion to sales) to 27.6%.

Operating expenses--not including depreciation--were Ps458.7, rising +Ps40.9 because of:
a) Higher exploration expenses +Ps1.1 primarily at the Fresnillo and La Herradura mines;
b) Higher Administration & General expenses, +Ps39.8.

Because of the rise in Gross earnings (+Ps558.1), offset in part by an increase in operating expenses (+Ps40.9), EBITDA was Ps1,503.1, an increase of +Ps517.2 (+52.5%), and the EBITDA margin was 21.7%.

Due to the increased EBITDA (+Ps517.2), offset in part by higher depreciation charges (+Ps3.6), operating income grew by +Ps513.6, to 17.5% of sales.

In the period in question, total financing cost was Ps29.8, an improvement over the first-quarter 2006 cost of Ps47.2. The -Ps17.4 change was due to the following:
a) Higher net monetary gains +Ps1.2 mainly due to higher inflation;
b) Net foreign-exchange losses of Ps8.1 compared to a gain of Ps4.3 in 2005, meaning a decline of -Ps12.4; and
c) Lower net interest expenses, -Ps28.6 because of higher returns and lower interest on bank loans, in turn caused by exchange-rate fluctuations and income from interest rate forwards.

The other expenses (income) line shows proceeds of Ps870.8 compared to Ps530.0 in the first quarter of last year. The 2006 income was related to the sale of the Pinos Altos project to Agnico Eagle.

The income tax and profit-sharing reserves (net) show a charge of Ps714.9, an increase of +Ps305.5 over the year-earlier period. The change is due to pretax earnings of Ps2,055.4 in the first quarter of 2006, compared to a gain of Ps1,183.6 in the first quarter of 2005.

Equity in the results of unconsolidated affiliates totaled Ps153.6, a change of +Ps148.2 over to the loss reported one year earlier is due mainly to the recognition of higher profits for companies in which Peñoles has a minority stake.

The minority interest line shows a gain of Ps45.9, compared to the first-quarter amount of Ps200.9.

B) Comparative analysis for 1Q06 vs. 4Q05:

	(Millions of pesos) 1Q06 4Q05 Chge. ($) % Chge.     Net sales (*) $6,921.5 $6,177.8 743.7 +12.0     Gross income 1,961.8 1,690.3 271.5 +16.1     Gross margin 28.3% 27.4%     EBITDA 1,503.1 1,152.3 350.9 +30.5     EBITDA margin 21.7% 18.7%     Operating income   1,214.4 819.5 394.9 +48.2     Operating margin   17.5% 13.3%     Net income   1,141.0 560.0 581.0 +103.8     Net Margin 16.5% 9.1%

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

Net sales of Ps6,921.5 rose +Ps743.7 (+12.0%) due to:
a) Lower volume -Ps348.8 because of a reduction in the volume of zinc, sodium sulfate, Magnesium oxide and Magnesium sulfate;
b) Higher prices on most of the products the company sells, +Ps1,064.8;
c) Lower average exchange rate, -Ps65.8 (Ps10.5839 vs. Ps10.7138 per dollar);
d) Higher losses on derivatives trading (futures an options) on metals and the exchange rate -Ps108.8;
e) Restatement of figures in current pesos of the current quarter and other effects, -Ps202.3.

The cost of goods sold rose +Ps472.2, due to a higher cost of metal, because of higher quotations and volume purchased (+Ps608.9); offset in part by lower maintenance costs for equipment inside the mine, lower shipping and contractor costs, lower energy costs and higher revenues from concentrate treatment fees, in turn the result of an increase in the price sale and entries from third parties.

The rise in net sales (+Ps743.7) was higher than the increase in the cost of goods sold (+Ps472.2), so gross earnings rose +Ps271.5 and the gross margin (in proportion to sales) was 28.3%.

Operating expenses--not including depreciation charges--totaled Ps458.7, a decline of -Ps79.3 resulting from:
a) Lower exploration expenses, -Ps25.7, mainly because of less exploration at Pecobre and regional areas;
b) Lower Administration and General expenses, -Ps53.6.

Because of the rise in Gross earnings (+Ps271.5) and lower operating expenses (-Ps79.3), EBITDA went from Ps1,152.3 to Ps1,503.1, an increase of Ps350.9, and the EBITDA margin was 21.7%.

Total financing cost was Ps29.8, compared to a cost of Ps41.2 in the preceding quarter. The -Ps11.4 change breaks down as follows :
a) Lower net interest expense, -Ps15.6;
b) A growth of +Ps6.1 in net foreign-exchange results, because of a foreign-exchange loss of -Ps8.1 in the quarter, compared to only -Ps2.0 in the preceding quarter; and
c) Higher net monetary position effect, +Ps1.9.

The other expense line showed an income of Ps870.8 compared to Ps70.6 in the preceding quarter, because of the sale of the Pinos Altos project to Agnico Eagle during the quarter, and, in the preceding quarter, the sale of excess electrical energy.

The income tax and profit-sharing line shows a charge of Ps714.9 compared to Ps320.5 the quarter before. The higher charge of the current quarter (+Ps394.3) was due to pretax earnings of Ps2,055.4, compared to Ps849.0 in the preceding quarter.

Equity in the earnings of unconsolidated affiliates totaled a loss of +Ps153.6, derived from the recognition of the results among the companies in which Peñoles owns a minority stake.

Minority interest showed a gain of Ps45.9 compared to the fourth-quarter 2005 loss of Ps8.4.


5.- PROJECTS.

Construction of the Milpillas copper project in Sonora was completed, and equipment and functionality testing began in the fourth quarter of 2005. This mine will produce 55,000 metric tons of fine copper per year in the form of cathodes. Direct investment in this project will total US$217.8 million.

6.- STOCKHOLDERS' MEETING.

Pursuant to a resolution adopted in the General Ordinary Shareholders' meeting of April 5, 2006, a cash dividend of Ps2.00 per share will be paid on each of the 397,475,747 shares issued and outstanding, payable starting Wednesday, April 19 of this year.