(Figures in millions of constant pesos)

• Operating Income in the first half of the year rose +27.8%, EBITDA grew +20.4% and Gross Income increased +17.7% over the same period of last year, all of them record advances in the company's history.

• Net Income doubled to Ps859.0 from Ps438.5 in the first half of 2004.

• Six-month (billed) Sales reached a record level of USD883.6 million, rising +20.7% in dollar terms over the same half of last year.

• In the first six months of the year, the production of refined magnesium oxide rose +34.4%, refined gold +23.3%, and refined lead +2.3%.

1.- EXECUTIVE SUMMARY

In the first half of 2005, Sales (billed) reached a record of Ps9,813.0 (not including the results of metals and exchange-rate hedging), rising +15.8% over the same period of last year; this amount is equivalent to USD 883.6 million.

Similarly, Operating Income rose to Ps1,160.4, EBITDA to Ps1,799.6 and Gross Income to Ps2,629.7, rising +27.8%, +20.4%, and +17.7%, respectively.Net Income came to Ps859.0, +95.9% greater than the Ps438.5 reported in the first half of 2004.

This growth described above was the result of:

(a)Higher metal quotations, as follows: zinc, USD 0.5874 per pound (+23.5% vs. the first half of 2004), lead USD 0.4458 per pound (+18.7%), silver USD 7.07 per ounce (+9.1%) and gold USD 424.24 per ounce (+6.6%);
(b) Higher Sales volume of gold (+22.5%), silver (+7.1%), magnesium oxide (+5.9%) and magnesium sulfate (+45.4%; and
(c) The peso's 3.75% revaluation against the dollar as of the close of the period translated into a foreign-exchange gain of Ps55.57, compared to a loss of Ps47.7 in the same period of 2004 (an absolute change of Ps103.4).

Investment in exploration was +58.9% higher in the period, due to a m ore intense pace of exploration at Francisco I. Madero, Fresnillo, La Herradura, Pecobre and regional exploration in Mexico.

One highlight of this year's first quarter was the sale of the Mezcala gold project in the state of Guerrero, for USD 70.0 million; net revenues from exploration and development expenses were Ps549.1.

As a result of these revenues, and the improved Operating results, the Income tax provision was increased, along with Minority Interest, since the Newmont gold company (in the U.S.) was 44% owner of the Mezcala property.

The following table sums up the results for the first half of 2005:

	(Millions of pesos) 1H05 1H04 Chge. ($) % Chge.     Net Sales (*) $9,789.7 $8,298.7 +1,491.0 +18.0     Gross income 2,629.7 2,233.5 +396.2 +17.7     EBITDA 1,799.6 1,494.2 +305.4 +20.4     Operating income 1,160.4 908.2 +252.2 +27.8     Total financing cost 59.4 172.5 -113.1 -65.6     Other expenses (Income) (516.5) 11.4 -527.9 n/a     Net income 859.0 438.5 +420.0 +95.9

(*) Includes metal and exchange-rate hedging gains

The results benefited further from strong Operating performance by our different divisions:

In the Mining Division, the production of metallic content increased over the previous year, as follows: gold: +11,851 ounces (+7.0%), lead +1,620 metric tons (+5.7%), silver +274,993 ounces (+1.2%) and zinc +610 metric tons (+0.6%).These increases were the result of the startup of capacity expansions at Fresnillo and Sabinas in the second half of 2004, and increased Operating continuity at Francisco I. Madero and Tizapa.

In the Metals Chemicals Division, refined metal production also rose over the first half of 2004. Gold increased by +96,030 ounces (+23.3%), silver +2,599,818 ounces (+6.4%) and lead +1,581 metric tons (+2.3%).The slight drop in zinc output (-1.2%) was due to an extension of the stoppage for scheduled major maintenance in order to completely overhaul one of the three toasters after 26 years of operation.

At the close of the period, Peñoles had a total debt equivalent to US$534.5 million.The current debt is composed primarily of:

(i) a private placement made in 1997 for USD 380.0 million, at a fixed rate of 8.39%, whose payment program begins in 2006 with payments of USD 15.2 million per quarter; and
(ii) US$112.0 million in drafts on a credit obtained at the end of 2004 totaling USD 155.0 million, to build the Milpillas cooper project, which is slated for startup at the end of this year.

In January-June of this year, the Cash Flow from Net Results totaled Ps1,837.7, rising +88.0% over the same period of 2004.however, working Capital increased due to the receipt of imported materials rich in precious metal content, toward the end of the quarter.Because of the inherent characteristics of these materials, they will be processed in July 2005, and working capital should then decline again.

Among the largest uses of funds were: (i) investments of Ps728.7 in property, plant and equipment, mainly to build the Milpillas copper project and expand the La Ciénega gold mine; and (ii) a dividend payment of Ps524.9 to shareholders of Industrias Peñoles.At the close of the period, the company's cash position stood at Ps1,163.4, equivalent to USD 107.3 million.

2.- ECONOMIC ENVIRONMENT AND METALS PRICES

	2Q04 1Q05 2Q05     Inflation (%)     In the period 0.06 0.79 0.16     12 months 4.37 4.38 4.48     Exchange rate (pesos/dollar):       Close 11.4116 11.2942 10.8428     Average 11.3772 11.1821 10.9823     Peso devaluation (%) at the close:     In the period +2.31 +0.26 -3.75     12 months +8.88 +1.26 -4.98

	Quotations Gold ( US$/Oz) Silver ( US$/Oz) Lead ( US$cts/lb) Zinc ( US$cts/lb)     1st. quarter 2004 408.44 6.71 38.30 48.54     2nd. quarter 2004 393.14 6.25 36.78 46.61     3rd. quarter 2004 401.29 6.49 42.29 44.44     4th. quarter 2004 433.97 7.25 43.48 50.51     Average 2004 409.21 6.68 40.21 47.53     1st. quarter 2005 427.23 6.99 44.40 59.73     2nd. quarter 2005 427.25 7.16 44.75 57.75     %Chge. 2Q2005 vs 2Q2004 +8.7 +14.5 +21.7 +23.9     %Chge. 2Q005 vs 1Q2005 0.0 +2.5 +0.8 -3.3     %Chge. YTD05 vs. YTD04 +6.6 +9.1 +18.7 +23.5

Gold: the quarterly average quotation (USD 427.25 per ounce) was unchanged form the first quarter of the year (USD 427.23 per ounce) due to the dollar's recovery against the euro, in turn caused by the publication of encouraging economic data in the United States and the recent difficulties the European Union has been having in preparing its budget and a common constitution. Nevertheless, the price of the metal was favored by Interest among technical and speculative funds.

Silver: average quotations rose +2.5% in the quarter, compared to the first quarter. This metal benefited from the stability of gold prices and industrial metals, and Interest among speculative funds, as well as rumors that a new "Silver ETF" investment instrument would be launched, which analysts believe could attract more demand to this market.

Lead: the average quarterly price of this metal rose by a slight +0.8% over the previous quarter, because of low inventory levels.This offset fundamental news relating to the reduction in the deficit in this market and high levels of exports coming in from China.

Zinc: during the period, the price of this metal was negatively influenced by a rise in inventories in the LME vaults; however, prices resumed their downtrend toward the end of the quarter.

3.- OPERATING RESULTS

		Production Volume
	2QO4 1Q05 2Q05     Mining Division     Ore milled (Mton) 1,786 1,939 2,012     Stacked deposited(a) (Mton) 2,321 2,076 2,109     Gold (kg) 2,645 2,844 2,792     Silver (ton) 339.8 331.1 370.3     Lead (ton) 13,151 16,635 15,316     Zinc (ton) 52,657 52,498 52,824     (a) La Herradura: open-pit mine.     Metals & Chemicals Division:     Gold (kg) 6,023 7,856 7,967     Silver (ton) 605.9 684.0 670.3     Lead (ton) 32,180 36,512 33,784     Zinc (ton) 51,328 59,641 46,654     Sodium sulfate (ton) 152,000 149,500 152,000     Magnesium oxide (ton) 19,037 17,558 23,990     Ammonium sulfate (ton) 59,805 43,797 47,440     Magnesium sulfate (ton) 7,800 3,450 8,600

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

*Change from 2Q05 vs. 2Q04, first six months:
- Gold (+7.0%): higher milling at La Ciénega and Fresnillo, and higher grade and rich solution treated at La Herradura.
- Lead (+5.7%): higher grade at La Ciénega and Francisco I. Madero, and more ore milled at Fresnillo.

* Change 2Q05 vs. 2Q04:
- Gold (+5.6%): more rich solution treated at La Herradura.
- Silver (+9.0%): mainly at Fresnillo, due to greater amounts of milled ore.
- Lead (+16.5%): higher grade at Francisco I. Madero and more ore milled at Fresnillo.

* Change 2Q05 vs. 1Q05:
- Silver (+11.9%): higher milling and grade at Fresnillo.
- Lead (+4.7%): higher milling and grade at Naica and Fresnillo, and higher grade at Francisco I. Madero.

Metals Division (production of refined metal):

*Change 2Q05 vs. 2Q04, first six months:
- Gold (+23.3%): higher direct entries of semi-processed materials at the refinery.
- Silver (+6.4%): higher direct content-rich entries from third parties at the lead-silver refinery.
- Lead (+12.2%): higher entries of content-rich concentrates from third parties.
- Magnesium oxide (+34.4%): higher demand for export refractory grade and caustic grade, both domestic and export.
- Magnesium sulfate (-20.2%): for reasons of Operating strategy and inventory controls.
- Ammonium sulfate (-22.5%): due to inventory controls in progress at the lead foundry plant.

*Change 2Q05 vs. 2Q04:
- Gold (+32.3%): higher receipts of semi-processed, content-rich material at the refinery.
- Silver (+10.6%): higher direct entries from third parties to the lead-silver refinery.
- Lead (+5.0%): higher entries of content-rich concentrates at the foundry plant.
- Zinc (-9.1%): lower entries of content-rich concentrates at the zinc refinery, and an extension of the programmed stoppage for major maintenance.
- Magnesium oxide (+26.0%): to meet higher demand for refractory and caustic grade.
- Magnesium sulfate (+10.3%): higher brine production at the dams.
- Ammonium sulfate (+10.3%): due to inventory control.

*Change 2Q05 vs. 1Q05:
- Lead (-7.5%): lower entries of content-rich concentrates from third parties.
- Zinc (-21.8%): due to major maintenance in the second quarter, as well as a lack of electrical energy supply.
- Magnesium oxide (+36.6%): to meet higher demand for refractory grade.
- Magnesium sulfate (+149.3%): due to Operating continuity and production via brine from the dams.

4.- FINANCIAL RESULTS

A) Comparison of results from the first half of 2005 (1H05) vs. first half of 2004 (1H04):

	(Millions of pesos) 1H05 1H04 Chge. ($) Chge. (%)     Net sales (*) $9,789.7 $8,298.7 1,491.0 18.0     Gross income 2,629.7 2,233.5 396.2 17.7     Gross margin 26.9% 26.9%     EBITDA 1,799.6 1,494.2 305.4 20.4     EBITDA margin 18.4% 18.0%     Operating income 1,160.4 908.2 252.2 27.8     Operating margin 11.9% 10.9%     Net income 859.0 438.5 420.0 95.9     Net margin 8.8% 5.3%

(*) Includes revenues from metals and exchange-rate hedging.

The most important changes are analyzed below:

Higher Net Sales, +Ps1,491.0 (+18.0%), from Ps8,298.7 to Ps9,789.7; the increase breaks down as follows:
a) Higher prices +Ps892.6 on practically all products sold;
b) Higher Sales volume +Ps745.3 due to higher Sales of gold, silver, magnesium oxide and magnesium sulfate, as well as de concentrates sold by the Mining Division to third parties;
c) Lower losses due to metals and exchange-rate hedging +Ps150.9;
d) Lower average exchange rate -Ps34.4 (Ps11.0822 vs. Ps11.1848 per dollar); and
e) Effects of restatement of figures at constant June 20, 2005 pesos, -Ps263.4.

In dollar terms, net Sales totaled USD881.5 million, breaking down into (billed) Sales of USD883.6 million and hedging losses of USD2.1 million.

The higher Cost of Goods Sold, +Ps1,094.7 (+18.0%) was the result of:
a) Increased Production Costs, +Ps272.7 due to higher preventive maintenance costs in order to improve the useful life of the equipment, higher costs on direct materials in the Mining Division--including steel--fuel, because of a higher unit cost on coke and diesel, along with higher gas consumption and increased personnel costs;
b) Higher Metal Costs---net of Treatment Fees-- +Ps828.9 mainly due to higher prices and a higher volume de metals purchased from third parties, offset by a lower average exchange rate; and
c) Inventory movements, consolidation and restatement effects -Ps6.9.

Due to the rise in net Sales (+Ps1,491.0) and the less pronounced increase in the Cost of Goods Sold (+Ps1,094.7), Gross Income came to Ps2,629., an increase of +Ps396.2 (+17.7%), bringing the Gross Margin to 26.9% of Sales.

Operating Expenses –excluding depreciation- totaled Ps830.0, a growth of +Ps90.8 (+12.3%) due to:
a) Higher Exploration Expenses +Ps91.1 mainly due to increased activity in the Fresnillo, La Herradura and Pecobre zones, as well as greater regional exploration; and
b) Lower SG&A expense, -Ps0.3.

Because of the increase in Gross Income (+Ps396.2), which more than made up for the slight increase in Operating Expenses (+Ps90.7), EBITDA totaled Ps1,799.6 gaining +Ps305.4 (+20.4%), and bringing the EBITDA Margin to 18.4%, 18.0% more than in the first half of 2004.

Total Financing Cost was Ps59.4, down from Ps172.5 in 2004; the decline of -Ps113.1 breaks down as follows:
a) Foreign-exchange gains of +Ps103.4 because the peso gained 3.75% against the dollar in 2005, compared to a devaluation of 1.56% en 2004, influencing the net dollarized liability position;
b) Lower Interest Expense, -Ps34.9; and
c) Lower Monetary Position Effect, -Ps25.2, because of a decline in inflation (0.95% vs. 1.63%).

The Other Expenses (Revenues) line shows an Income of Ps516.5, compared to an outflow of Ps11.4 in the same period of 2004.The Income in the first half of this year was due mainly to the sale of the Mezcala gold project in Guerrero to Goldcorp-WheatonRiver for a net amount of Ps549.1.

Income tax and profit-sharing provisions -net- showed a charge of Ps575.0, higher by +Ps303.7 than what was reported in the year-earlier period. The change is due to pre-tax Income of Ps1,617.5 reported in 2005, while in 2004 the company reported profits of Ps724.3.

Equity in the Income of associates rose due to +Ps11.9, primarily the result of higher profits by the companies in which Peñoles owns a minority stake.

The Minority Interest line showed a gain of Ps209.2 compared to ayear-earlier benefit of Ps28.3. The increased Income was due mainly to the joint venture with Newmont Gold in connection with the sale of the Mezcala gold project.

B) Comparison of results for 2Q05 vs. 2Q04:

	(Millions of pesos) 2Q04 2Q03 Chge. ($) % Chge.     Net sales (*) $4,863.3 $4,046.5 816.8 20.2     Gross income 1,270.4 1,017.3 253.1 24.9     Gross margin 26.1% 25.1%     EBITDA 844.7 626.6 218.1 34.8     EBITDA margin 17.4% 15.5%     Operating income 517.5 327.6 189.9 58.0     Operating margin 10.6% 8.1%     Net income 309.0 80.4 228.6 284.2     Net Margin 6.4% 2.0%

(*) Includes revenues from metals and exchange-rate hedging.

The most significant changes are discussed below:

Net Sales of Ps4,863.3 increased +Ps816.8 (+20.2%) as follows:
a) Higher prices +Ps588.5 on practically all products sold;
b) Higher Sales volume +Ps403.1 due to higher Sales of gold, silver and zinc, as well as concentrates sold by the Mining Division to third parties;
c) Lower hedging losses (metals and exchange rate), +Ps65.7;
d) Lower average exchange rate (Ps10.9823 vs. Ps11.3772 per dollar.) -Ps156.0; and
e) Effects of restating figures in constant pesos of the current quarter, -Ps84.5.

In dollar terms, net Sales came to USD443.3 million, comprised of (billed) Sales of USD444.1 million and hedging losses of USD0.8 million.

The Cost of Goods Sold increased +PS563.7 as follows:
a) Higher Production costs, +Ps150.6 (+10.5%) due to higher prices on fuels like metallurgical coke (higher consumption and unit costs) and gas (higher consumption), shipping (greater volume of ore hauled), subcontractors and Operating materials for the Mining Division;
b) Higher Metal Costs---net of Treatment Fees-- +Ps417.7 due to higher prices on metals purchased from third parties, in turn the result of higher quotations, and greater amounts of concentrates purchased from third parties; and
c) Inventory movements, restatement and consolidation effects -Ps4.6.

Because the rise in Sales, +Ps816.8 was higher than the increase in the Cost of Goods Sold by +Ps563.7, Gross Income advanced +Ps253.1 and the Gross Margin (in proportion to Sales) went from 25.1 to 26.1 percent.

Operating Expenses--excluding Depreciation--- totaled Ps425.7, +Ps35.0 higher as a result of:
a) Higher Exploration Expenses +Ps41.7 mainly at Fresnillo and La Herradura, as well as higher regional exploration; and
b) Lower SG&A expense -Ps6.7.

Due to the higher Gross Income (+Ps253.1), offset in part by a jump in Operating Expenses (+Ps35.0), EBITDA came to Ps844.7 rising +Ps218.1 (+34.8%), and the EBITDA Margin went from 15.5 to 17.4 percent.

With EBITDA rising by +Ps218.1) offset in part by the rise in Depreciation Charges (+Ps28.2) in connection with the startup of expansions in the mining business (Fresnillo, Sabinas and La Ciénega), Operating Income advanced +Ps189.9 bringing the Operating Margin (in proportion to Sales) up from 8.1 to 10.6 percent.

Total Financing Cost was Ps13.7 compared to Ps167.0. The change (-Ps153.3) breaks down as follows:
a) Foreign-exchange gains of Ps51.4 compared to a loss of Ps81.2 in the second quarter of 2004 (a change of Ps132.6). The gain in this quarter is the result of the peso's appreciation (Ps0.4514 per dollar), which affected the company's dollarized liability position;
b) Lower Interest Expense, -Ps17.8; and
c) Higher Monetary position gains, +Ps2.9.

The Income-tax and profit-sharing provisions (net) totaled Ps178.7, rising by +Ps115.8, basically because of higher pre-tax Income (+Ps342.3).

Equity in the Interests of associate companies totaled Ps30.9, a gain of +Ps16.3 due mainly to the recognition of increased earnings among the companies in which Peñoles owns a minority stake.

The minority Interest line shows a benefit of Ps14.7, compared to Ps0.4, in the second quarter of last year. This quarter's benefit was due primarily to better results from Minera Tizapa and Minera Penmont (La Herradura).

C) Comparison of results from second quarter of 2005 (2Q05) vs. first quarter of 2005 (1Q05):

	(Millions of pesos) 2Q05 1Q05 Chge. ($) % Chge.     Net sales (*) $4,863.3 $4,926.3 (63.0) (1.3)     Gross income 1,270.4 1,359.3 (88.9) (6.5)     Gross margin 26.1% 27.6%     EBITDA 844.7 954.9 (110.9) (11.5)     EBITDA margin 17.4% 20.4%     Operating income 517.5 642.8 (125.3) (19.5)     Operating margin 10.6% 13.0%     Net income 309.0 550.0 (241.0) (43.8)     Net Margin 6.4% 11.2%

(*) Includes revenues from metals and exchange-rate hedging.

Net Sales (including hedging results) were Ps4,863.3 dropping by -Ps63.0 (-1.3%) for the following reasons:
a) Lower average exchange rate -Ps79.0 (Ps10.9823 vs. Ps11.1821 per dollar);
b) Higher metals prices, mainly silver +Ps27.5;
c) Higher volume +Ps10.7 due to higher Sales of gold, lead, magnesium oxide and concentrates sold by the mining business to third parties, making up for a drop in the Sales volume of silver and zinc;
d) Lower losses from hedging in futures and options on metals and the exchange rate, +Ps6.9; and
e) Effects of restating figures in pesos of the current quarter and others, -Ps29.1.

The Cost of Goods Sold rose +Ps25.9 (+0.7%) due to lower revenues from treatment fees, higher costs from subcontractors and gas; offset by lower costs on metal purchased from third parties, in turn the result of a lower average exchange rate in the quarter in question.

With Sales down by -Ps63.0 and the Cost of Goods Sold up by +Ps25.9, Gross Income shrank by -Ps88.9, so the Gross Margin (in proportion to Sales) dropped from 27.6 a 26.1 percent.

Operating Expenses –not including depreciation- totaled Ps425.7, an increase of +Ps21.3, the result of:
a) Higher Exploration Expenses +Ps18.5, mainly because of regional exploration in northern Mexico; and
b) Higher SG&A expense, +Ps2.8.

Because of the drop in Gross Income (-Ps88.9) and the rise in Operating Expenses (+Ps21.3), EBITDA moved down from Ps954.9 to Ps844.7, falling -Ps110.2, and the EBITDA Margin dropped from 19.4 to 17.4 percent of Sales.

Total Financing Cost was Ps13.7 for the quarter, and improvement over the cost of Ps45.7 in the previous quarter; the -Ps32.0 change was due to the following:
a) An increase of +Ps47.2 in foreign-exchange gains thanks to the peso's strength against the dollar, compared to a devaluation in the first quarter of the year (Ps0.4514 vs. -Ps0.0294 per dollar);
b) Lower Interest expense, -Ps10.7; and
c) Lower monetary position gains -Ps25.9, resulting from an easing of inflation in the second quarter (0.16% vs. 0.79%).

The "other expense" line showed an expense of Ps32.4 compared to an Income of Ps548.9 in the preceding quarter.The first-quarter gain was chiefly the result of Peñoles' sale of the Mezcala gold project in Guerrero to Goldcorp-WheatonRiver for Ps549.1.

On the Income Tax and Profit-Sharing Reserve line, the company reports an amount of Ps178.7, compared to Ps396.2 in the preceding quarter. The lower second-quarter charge (-Ps217.5) was the result of a drop in pretax earnings to Ps471.5 in the second quarter, compared to Ps1,146.0 in the first.

Equity in the results of associate companies totaled Ps30.9, due primarily to increased earnings among the companies in which Peñoles holds a minority stake.

Minority Interest totaled Ps14.7, compared toPs194.5 in the preceding quarter.The reason for the first quarter's higher amount was a better performance by El Bermejal, a joint venture with Newmont Gold, because of the sale of the Mezcala gold project.

5.- PROJECTS

(i) Construction of the Milpillas copper project in Sonora, which will start up in the fourth quarter of 2005.The mine will turn out an annual average of 55,000 metric tons of fine copper.The global physical progress of the project's construction is 80.7%.In this quarter, a detailed review was conducted of the status of the project and investment.As a result of a worldwide increase in oil prices, which affected the unit cost of plastic pipes, along with a rise in the cost of steel and the strength of the euro, the amount of investment is estimated to have risen +5.8%, to a total of USD 216.8 million; and
(ii) In the second quarter of 2005, capacity expansions were concluded at the La Ciénega gold mine in Durango, which raised capacity from 133,500 to 164,900 ounces per year (+23.5%).Startup testing was begun with loaded equipment, and operations should normalize in the third quarter, when the unit will reach full capacity.

6.- SOCIAL AND ENVIRONMENTAL COMMITMENTS.

During this past quarter, Peñoles has continued its social development programs and projects, working in partnership with the communities that surround its operations.Training courses were given to develop teaching and administrative capabilities among 140 primary and secondary school teachers; campaigns against addictions were stepped up 4 high schools in Torreón, adding to those developed in the communities near our mining units in La Herradura, Naica, Ciénega and Sabinas, as well as the Química del Rey plant.

As part of the festivities surrounding World Environment Day, environmental education activities were held in all our work centers: parades, contests, conferences, forestation and reforestation activities, road-clearing, collection and separation of waste, preparing compost, and others.