(All figures in millions of constant pesos)

• In the first half of 2007, Billed Sales were 25.3% higher than in the same period of 2006, gross income was 15.1% higher, EBITDA rose +15.3% and operating income +13.1%. All of these figures were the highest of any six-month period in the company's history.
•Production of refined gold (850,355 ounces) and refined silver (55.2 million ounces) and sales of refined gold (861,296 ounces) and refined silver (55.4 million ounces) were also six-month records.
• In the second quarter alone, production of refined gold (434,935 ounces) and refined silver (28.3 million ounces); and sales of refined gold (438,086 ounces) and refined silver (28.8 million ounces) reached record levels as well, as did sales, gross earnings and EBITDA in dollar terms.

1.- EXECUTIVE SUMMARY

In the first half of fiscal year 2007, Peñoles generated record results.Billed sales--not including the results of metals and exchange-rate hedging--were Ps23,522.7 (US$2,151.6 million), rising +25.3% over the first half of 2006, gross earnings totaled Ps5,692.0 (US$520.7 million) was higher by +15.1% and EBITDA was Ps4,454.8 (US$407.5 million), up +15.3%.Operating income totaled Ps3,658.5 (US$334.6 million), +13.1% higher than in the year-earlier period.

Excluding extraordinary items in both periods, and primarily the March 2006 entry of an extraordinary gain on the sale of the Pinos Altos gold project, net income in the first half of 2007 was Ps2,100.1, +19.3% higher than in the first half of 2006.Including extraordinary items, net income was Ps2,159.5, similar to what was reported in the first half of 2006.

The following were the most significant changes in operating and market indicators that favorably affected the results reported by the company in the first half of 2007:

(i) Average prices of gold (US$658.75 per ounce), silver (US$13.31 per ounce) lead (US$0.8987 per pound) and zinc (US$1.6147 per pound) were higher than 2006 by +11.5%, +21.5%, +69.2% and +28.6%, respectively.
(ii) Record production volume of refined gold (850,355 ounces) and refined silver (55.2 million ounces).
(iii) Higher revenues at the metallurgical complex due to a higher volume of third-party concentrates processed, and higher treatment fees.
(iv) A lower unit cost of energy like metallurgical coke (-5.7%) and natural gas (-2.7%).
(v) The peso's appreciation against the dollar at the close of the period translated into net foreign-exchange gains of Ps32.6, compared to a net foreign-exchange loss of Ps132.7 in the same period of 2006.
(vi) Lower income tax and profit-sharing provisions (-Ps227.5) because of the extraordinary gain reported one year earlier from the sale of Pinos Altos.

These positive aspects were offset in part by the following adverse impacts:

(a) Higher average unit cost of electrical energy (-5.7%) because the annual maintenance of the Peñoles thermoelectric plant (TEP) took longer than it did in 2006. Still, the cost of electricity in the period was US$19.3 million less than what it would have been had it been paid to the Federal Electricity Commission (CFE).

(b) Higher minority interest, because of better results from the mining companies in which Peñoles has minority partners.

The expiration of hedge positions the company had in various metals yielded an opportunity cost of Ps1,669.8, compared to Ps1,002.8 in the first half of 2006, the result of a sharp rise in metals quotations.The expired contracts were taken out in the past to guarantee the company's future margins.In any case, because the unhedged portion of the mining input was greater than the hedged portion, the company reaped the benefits of higher metals prices on that volume.

The cost of goods sold rose +26.0% due to:

(a) Higher metals costs resulting from a greater volume of metal purchased from third parties in the Met-Mex metallurgical complex, in order to make maximum use of production capacity and higher metals prices.

(b) A rise in the production costs (+14.8%), due to higher costs for subcontractors, operating material, major maintenance and repairs, personnel costs and energy.In addition, this quarter included the costs of the new mining operations at Milpillas, which were not present in 2006. Internal inflation for Peñoles in the first six months of year, which is calculated based on a basket of its most important inputs, was 5.16%, higher than the rise in the National Consumer Price Index (0.61%).This substantial increase was the result of a higher unit cost for repairs, inputs, and electrical energy.

(c) Higher metals prices improved concentrate treatment fees due to the effects of the price scale, which partially reduced the above-mentioned cost increases.

Depreciation of fixed assets rose +26.6% due to investments in fixed assets, particularly in the Milpillas mine.

Investment in prospecting rose +37.8%, and was used to replace and augment reserves in the operating mines, as well as to identify and study new deposits in Mexico and South America (Peru and Chile).

Total financing cost was lower by -Ps104.2, due to:

1) Higher net interest expenses, +Ps74.9, due primarily to an increased average liability position in long-term debt (US$36.4 million) resulting from the restructuring of debt by Industrias Peñoles in the second quarter of 2006.At the close of the period, the exchange rate stood at Ps10.7926 per dollar, compared to Ps10.8755 at the close of 2006, which is an appreciation of -0.76%.
2) Net foreign-exchange gains rose +Ps32.6, resulting from the peso's appreciation against the dollar and a higher liability dollar position, comparing well against the foreign-exchange loss in the same period of 2006. At the close of the period, the exchange rate was Ps10.7926 per dollar, compared to Ps10.8755 at the end of 2006, an appreciation of -0.76%.
3) Higher net monetary gains, +Ps13.8, the result of a greater net liabilitymonetary position.

The table below sums up the above information:

	1S2007 1S2006 % Chge.     Billed sales $23,522.7 $18,770.5 +25.3%     Net Sales s (*) 21,852.9 17,767.1 +23.0     Gross Income 5,692.0 4,944.6 +15.1     EBITDA 4,454.8 3,865.0 +15.3     Operating income 3,658.5 3,235.6 +13.1     Total Financing Cost 162.8 267.0 -39.0     Other expenses (proceeds) 261.9 (622.5) n/a     Net income w/oExtraordinary items(**) 2,100.1 1,760.5 +19.3     Net income 2,159.5 2,185.4 -1.2

(*) Includes hedging results.
(**) Includes extraordinary items, primarily the sale of projects.

The following sums up the highlights of our operations in the first half of 2007, compared to those of the same period of last year.

Mines: Metallic content of silver, lead and zinc was affected by lower production at La Ciénega, Fresnillo, and Bismark, due to lower grades. Sabinas lowered its production because of the startup of a new lead-copper concentrate separation circuit that will produce higher-quality concentrates; and at Naica, production was hampered by flooding early in the year the slowed the pace of production for four weeks.Currently, Naica is back to normal operations and capacity. Gold content increased 5.3% due to higher production from La Herradura and increased recovery at Tizapa.

The production of cathode copper at Milpillas still has not reached the expected level, due to difficulties encountered in operating the mine, where soft, sandy ground required more thorough anchoring and footing to ensure stability and guarantee the safety of the personnel.

Metals: Production of refined silver set a new six-month record (55.2 million ounces), as did production of refined gold (850,355 ounces), due to higher entries of concentrates and materials rich in precious metal content.

At the close of the period, Peñoles had total debt of US$797.5 million. The current debt load is made up primarily of the following long-term commitments :
(i) US$97.4 million from a private placement in 1997.
(ii) US$377.0 million from a private placement of bonds in the second quarter of 2006.
(iii) US$142.5 million in credit taken out at the end of 2004 to build the Milpillas copper project.
(iv) US$176.2 million in short-term debt, used mainly to finance working capital.

In the first half of 2007, the gross flow of cash generated by the company's operations came to Ps3,592.2, +113.3% more than in the same period of 2006. This amount, combined with the fund obtained through short-term bank loans, was used to finance:
(i) An increase of Ps1,127.9 in working capital, particularly.
(a) Higher inventories (Ps784.4) due to higher prices on metals and entry of a higher volume of materials with precious metal content, and lead and zinc concentrates from third parties .
(b) Reduction in suppliers (Ps510.2) due to payments to ore suppliers.
These effects were offset in part by a reduction in Clients (Ps182.8), the result of recoveries in the export portfolio .
(ii) Investment in property, plant and equipment, Ps846.7, to replace equipment and projects primarily at Fresnillo, Met-Mex, La Ciénega, Penmont, Sabinas, Tizapa and Química del Rey.
(iii) Payment of dividends to shareholders totaling Ps2,368,446.

Cash and temporary investments totaled Ps1,730.9 at the end of the period Some of these funds will be used to make deposits relating to Peñoles' debt and metals hedges.

As regards the results of the second quarter of 2007, compared to the first quarter of this year, sales--not including metals and exchange-rate results--were +8.6% higher, gross income +3.3%, and EBITDA +0.9%.These results were influenced by higher metals prices, a higher metallic content of silver and gold produced at the mines, and higher volumes of refined metals produced and sold.
Net income grew by +17.9% from the first to the second quarter of this year, the result of extraordinary gains from the sale of unproductive assets and recognition of earnings in the companies in which Peñoles has a minority stake.In the second quarter of 2007, sales came to US$1,125.8 million, gross income US$268.8 million, and EBITDA US$205.6 million, all of them record highs for the company.

At the El Saucito project, work moved ahead on construction of the shaft and prospecting ramp, which will allow us to directly determine the mineralization of the deposit, and to go about extracting the metal in the future.An additional vein has been discovered, and so far resources of more than 100 million ounces of silver have been discovered.As regards the Juanicipio project, in alliance with Mag Silver of Canada, mineral resources have been increased to more than 150 million ounces of silver. The Velardeña silver, zinc and lead project in Durango has yielded positive results, and reserves there increased.

2.- ECONOMIC CLIMATE AND METALS PRICES

	2Q06 1Q07 2Q07   Inflation (%):   In the period (0.21) 1.02 (0.41)   12 months 3.19 4.21 4.01   FX rate (pesos/dollar) :   .Close 11.3973 11.0507 10.7926   Average 11.1626 11.0121 10.8873

	Gold ( US$/Oz) Silver ( US$/Oz) Lead ( US$cts/lb) Zinc ( US$cts/lb)     1st quarter 2006 553.98 9.70 56.33 101.70     2nd quarter2006 627.40 12.22 49.91 149.33     3rd quarter 2006 621.50 11.65 53.96 152.56     4th quarter2006 614.47 12.59 73.80 190.67     Average2006 604.34 11.54 58.50 148.56     1st quarter 2007 650.27 13.29 81.04 156.75     2nd quarter 2007 667.24 13.32 98.70 166.18     % Chge. 2Q07 vs 2Q06 +6.4 +9.0 +97.7 +11.3     % Chge. 2Q07 vs 1T2007 +2.6 +0.2 +21.8 +6.0     % Chge. 2Q07A vs 2Q06A +11.5 +21.5 +69.2 +28.6

Highlights of the quarter:

Gold: Average quotations in the quarter rose +2.6% compared to the first quarter of 2007. The price of gold was pushed up by geopolitical tensions surrounding Iran's program of uranium enrichment and Israeli attacks on the Gaza strip, the interest of speculative funds and physical consumers, a rise in demand for gold jewelry in Dubai, Turkey and the United Arab Emirates, and Italy's announcement of the possible launch of a new Exchange Traded Fund (ETF) contract on precious metals.

Silver: During the quarter, average quotations rose +0.2% over the immediately preceding quarter. Silver benefited from increased interest among physical consumers and speculative funds .

Lead: The average quarterly price of this metal rose +21.8% over the first quarter of 2007. Quotations were higher due to an encouraging report on the U.S. ISM Manufacturing index, the news that the Australian port of Esperance--where lead is shipped out from the Magellan mine--had lost it license, lower supply from china due to a new tax on exports of refined metals, interest among battery consumers and a decline in inventories on the London Metal Exchange (LME) .

Zinc: During the quarter, the average quotation rose +6.0% over the immediately preceding quarter, helped by positive indicators in durable goods orders in the United States .

3.- OPERATING RESULTS - PRODUCTION VOLUME.

	2Q06 1Q07 2Q07     Mining Division :     Milled ore (Mton) 2,093 2,029 2,115     Deposited ore (a) (Mton) 2,226 2,925 2,868     Gold (kg) 2,976 3,213 3,030     Silver (ton) 394.0 343.2 377.0     Lead (ton) 16,706 12,764 16,744     Zinc (ton) 54,123 49,657 47,589     (a) La Herradura: open-cut mine     Metals and Chemicals Division :     Gold (kg) 13,311 12,921 13,528     Silver (ton) 790.4 836.5 880.8     Lead (ton) 36,915 34,105 35,583     Zinc (ton) 63,581 53,428 60,396     Sodium sulfate (ton) 151,000 149,000 149,000     Magnesium oxide (ton) 23,297 17,138 19,346     Ammonium sulfate (ton) 53,535 41,238 45,493     Magnesium sulfate (ton) 10,500 7,100 9,150

Mining business (metallic content in concentrate and other materials) :
* Change 2Q07 vs. 2Q06 YTD :
- Gold (+5.3%): higher ore deposits at Penmont, higher grade and recovery at Tizapa and higher milled ore at La Ciénega.
- Lead (-11.2%): lower grade at La Ciénega, lower grade and milled ore at Naica and Tizapa and lower grade and recovery at Sabinas and Fresnillo.
- Zinc (-9.4%): lower grade, milled ore and recovery at Naica due to flooding at the start of 2007, lower grade at La Ciénega and Bismark and lower grade and recovery at Sabinas and Fresnillo.
- Silver (-6.3%): lower grade and recovery at Fresnillo, La Ciénega, Bismark and Sabinas and lower milled ore, grade and recovery at Naica.

* Change 2Q07 vs. 2Q06:
- Gold (+1.8%): higher milled ore at Penmont and higher grade and recovery at Tizapa.
-Zinc (-12.1%): lower grade at Bismark, lower milled ore, grade and recovery at Naica and lower grade and recovery at Sabinas and Fresnillo.
- Silver (-4.3%): lower grades at Fresnillo and La Ciénega, lower recovery at Sabinas and lower milled ore and recovery at Naica.

* Change 2Q07 vs. 1Q07:
- Lead (+31.4%): higher milled ore and grade at Naica, higher grade and recovery at Sabinas and higher grade at F.I. Madero.
- Silver (+9.8%): higher milled ore and grade at Fresnillo and higher milled ore, grade and recovery at Naica, Sabinas and F.I. Madero.
- Gold (-5.7%): lower milled ore and grade at La Ciénega.
- Zinc (-4.2%): lower grade and recovery at Bismark and Sabinas and lower grade at F.I. Madero.

Metals and Chemicals Business (production of refined metal):
* Change 2Q07 vs. 2Q06 YTD:
- Silver (+11.1%): higher silver content in dorés and direct materials from third parties (quarterly production record Apr-Jun).
- Gold (+9.3%): higher receipts of semi-processed, content-rich materials from third parties (quarterly production record in the April-June quarter).
- Lead (-5.3%): lower receipts of semi-processed materials at the lead foundry.
- Ammonium sulfate (-18.5%): production was higher in the first half of 2006 because of a reduction of acid inventories and higher receipts of solution.
- Magnesium sulfate (-13.1%): lower production because of maintenance supplied to certain facilities, and various work performed on the dryer.
- Magnesium oxide (-8.2%): lower production due to work on verifying parameters and specifications required by clients.

* Change 2Q07 vs. 2Q06 :
- Silver (+11.4%): higher receipts of concentrates rich in silver content, which brought a record level of production in the quarter.
-Zinc (-5.0%): lower production due to new process evaluation .
- Lead (-3.6%): a lower amount of semi-processed material received at the lead foundry.
- Magnesium oxide (-17.0%): a decline in hydroxide inventories and in advance of plant maintenance.
- Ammonium sulfate (-15.0%): higher inventories of sulfuric acid in 2006.
- Magnesium sulfate (-12.9%): lower availability of hydroxide inventories.

* Change 2Q07 vs. 1Q07 :
- Zinc (+13.0%): higher entries of content-rich concentrates from both the company's own mines and outside sources, to the zinc refinery.
- Silver : (+5.3%): higher entries of content-rich concentrates at the lead-silver refinery.
- Gold (+4.7%): higher entries of doré to the refinery, and a new quarterly production record.
- Lead (+4.3%): higher receipts of lead in semi-processed materials at the lead foundry.
- Magnesium sulfate (+28.9%): In the first quarter, maintenance was carried out on certain facilities and a variety of work performed on the dryer, which allowed for greater operating continuity in the April-June quarter.
- Magnesium oxide (+12.9%): Work on verifying parameters to meet with client specifications in the first quarter.
- Ammonium sulfate (+10.3%): higher production due to greater demand from the market.

4.- FINANCIAL RESULTS.

A) Comparative analysis of results YTD 2Q07 vs. 2Q06:

	(millions of pesos) 2Q07 2Q06 Chge ($) % Chage     Net sales (*) $21,852.9 $17,767.1 4,085.8 23.0     Gross income 5,692.0 4,944.6 747.4 15.1     Gross margin 26.0% 27.8%     EBITDA 4,454.8 3,865.0 589.8 15.3     EBITDA margin 20.4% 21.8%     Operating income 3,658.5 3,235.6 422.9 13.1     Operating margin 16.7% 18.2%     Net income 2,159.5 2,185.4 -25.9 -1.2     Net margin 9.7% 12.3%

(*) Includes metals and FX hedging results .

The main changes are discussed below:

Net sales were higher by Ps4,085.8 (+23.0%), rising from Ps17,767.1 to Ps21,852.9.The increase breaks down as follows :
a) Higher sales volume, +Ps1,306.3, due to increased sales of gold, silver, sodium sulfate and magnesium sulfate, as well as concentrates sold by the mining division to third parties ;
b) Higher prices, +Ps3,669.8, on practically all products sold ;
c) Higher losses from metals and FX hedges, -Ps666.4 ;
d) Higher average exchange rate, +Ps114.2 (Ps10.9497 vs. Ps10.8732 per dollar); and
e) Effects of restating figures from the previous year in constant pesos as of June 30, 2006 and other items, -Ps338.1.

E In dollar terms, net sales came to US$1,998.8 million, composed of record (billed) sales of US$2,151.6 million and hedging losses of US$152.8 million .

The +Ps3,338.4 (+26.0%) rise in the cost of goods sold was the result of:
a) Higher production costs, +Ps562.3 (+14.8%) due to an increased cost on the sub-contractors line, for anchoring work, greater development, higher consumption of operating materials in the mining division, preventive maintenance to prolong the useful life of the equipment, and higher personnel costs;
b) Higher cost of metal--net of treatment fees--Ps3,844.3, primarily due to higher prices and a greater volume of metal purchased from outside sources; and
c) Inventory movements, consolidation and restatement effects, -Ps269.5.

Because the rise in net sales (+Ps4,085.8) was greater than the increase in the cost of goods sold (+Ps3,338.4), the Ps5,692.0 in gross income was +Ps747.7 (+15.1%) higher and the gross margin (as a percentage of sales) rose to 26.0 percent.

L Operating expenses--excluding depreciation--totaled Ps1,237.2, +Ps157.4 higher (+14.6%) as a result of:
a) Higher exploration expenses, +Ps114.4, primarily due to increased activity in the Fresnillo district, in the La Herradura corridor, and La Ciénega, as well as a rise in international prospecting; and
b) Higher administration and general expenses, +Ps43.0.

Because the increase in gross income (+Ps747.4) more than covered the rise in operating expenses (+Ps157.4), EBITDA rose +Ps589.8 (+13.1%) to Ps4,454.8, and the EBITDA margin (as a percentage of sales) rose to 20.4 percent .

The +Ps747.4 increase in gross income also more than offset the rise in depreciation and amortization (+Ps167.1), so operating income (Ps3,658.5) was +Ps422.9 higher (+13.1%), and the operating margin (as a percentage of sales) grew to 16.7 percent.

Total financing cost was Ps162.8, -Ps104.2 lower than in 2006. The change breaks down as follows:
a) Net FX gains of Ps32.6, compared to the 2006 loss of Ps132.8.In 2007, the peso appreciated 0.76% against the dollar, compared to a 6.41% depreciation in 2006;
b) Higher net monetary gains, +Ps13.9, resulting form a higher net liability monetary position, which offset the lower inflation rate; and
c) Higher net interest expense, +Ps74.9, primarily due to a higher average liability position in long-term debt.

The other expenses (income) line showed a net outlay of Ps17.3, compared to a net gain of Ps882.9 in the previous year.The 2006 income was due primarily to the sale of the Pinos altos project to Agnico Eagle.

The income tax and profit sharing (net) line contained a charge of Ps1,154.6, lower by +Ps227.8 than in the same period of the preceding year. This change was due to lower pretax income (Ps3,478.3) in 2007, compared to earnings of Ps3,851.6 in 2006.

Equity in the results of unconsolidated associates rose in this period, chiefly due to the recognition of profits among the companies in which Peñoles owns aminority stake, totaling Ps50.4, compared to a loss of Ps163.7 in the first half of 2006.

Minority interest was Ps214.6 in the first half of 2007, compared to Ps120.1 in the same period of 2006; the increased earnings came chiefly from better operating results at Tizapa and Penmont.

B) Comparative analysis of results for 2Q07 vs. 2Q06:

	( Millions of pesos ) 2Q07 2Q06 Chge ($) % Chge     Net sales s (*) $11,247.3 $10,583.5 663.8 6.3     Gross income 2,879.9 2,908.4 -28.5 -0.9     Gross margin 25.6% 27.5%     EBITDA 2,227.8 2,304.7 -76.9 -3.3     EBITDA margin 19.8% 21.8%     Operating income 1,816.1 1,975.2 -159.1 -8.0     Operating margin 16.1% 18.7%     Net income 1,164.3 1,001.3 163.0 16.2     Net margin 10.3% 9.5%

(*) Includes metals and FX hedging results.

Net sales of Ps11,247.3 were higher by +Ps663.8 (+6.3%), due to the following elements :
a) Higher sales volume, +Ps246.8, primarily of gold, silver, zinc, sodium sulfate, magnesium sulfate and ammoniumsulfate;
b) Higher prices, +Ps1,368.1, on most products sold;
c) Higher average exchange rate (Ps11.0121 vs. Ps10.5839 per dollar), -Ps239.8;
d) Higher metals and FX hedging losses, -Ps254.0; and
e) Effects of restating figures in constant pesos of the current quarter and others, -Ps457.3.

In dollar terms, net sales totaled US$1,038.2 million, made up of net (billed) sales of US$1,125.8 million and hedging losses of UUS$87.6 million.

The cost of goods sold rose +Ps692.3, due to the following changes:
a) Higher production costs, +Ps233.4 (+11.7%), due to a rise in the cost of contactors, maintenance and repairs, operating material and personnel costs.
b) Higher cost of metal--net of treatment fees--Ps838.0, due to higher prices, a higher exchange rate and an increase in the volume of metal purchased from outside sources; and
c) Inventory movements, restatement and consolidation effects, -Ps69.0.

Because the +Ps663.8 rise in net sales was slightly lower than the +Ps692.3 increase in the cost of goods sold, gross income fell -Ps28.5, and the gross margin (as a percentage of sales) sank to 25.6 percent.

Operating expenses--not including depreciation effects--came to Ps411.6, +Ps48.3 higher because of:
a) A +Ps49.2 rise in prospecting expenses, mainly at the Fresnillo, La Ciénega and La Herradura mines;
b) Lower administration & general expenses, -Ps0.8.

As a result of lower gross income (-Ps28.5) and higher operating expenses (+Ps5.8), EBITDA was Ps2,227.8, -Ps76.9 (-3.3%) lower, and the EBITDA margin was 19.8 percent.

In turn, because of the -Ps76.9 drop in EBITDA and the +Ps82.1 rise in depreciation expense, operating income was off by -Ps159.1, and the operating margin was 16.1% of sales.

In the period in question, total financing cost was Ps83.6, comparing against the obtained in the second quarter of 236.1.The -Ps152.5 change breaks down as follows:
a) Higher net interest expense, -Ps21.7, due to higher interest on short-term bank loans;
b) A net foreign-exchange loss of Ps76.0, compared to the 2006 loss of Ps124.4, an improvement of +Ps200.2; and
c) Higher net monetary position losses, -Ps42.3, primarily due to a higher rate of deflation and higher net liability monetary position.

The other expenses (income) line showed a gain of Ps81.4, compared to an expense of Ps20.7 in the second quarter of last year. The 2007 income was the product of royalties and the company's sale of unproductive assets.

Net income tax and profit-sharing provisions were negative by Ps601.7, lower by -Ps38.6 than what was reported in the same period of last year.

Equity in the income of unconsolidated associates was +Ps55.2, +Ps59.5 better than the year-earlier loss of -Ps4.3, mainly because of better results from the companies in which Peñoles owns a minority position.

Minority interest totaled gains of Ps103.3, compared to the 2Q06 figure of Ps72.4, due to better results obtained at Tizapa and La Herradura.

C) Comparison of results for 2Q07 vs. 1Q07:

	( Millions of pesos ) 2Q07 1Q07 Chge ($) % Chge     Net sales s (*) $11,293.1 $10,559.8 733.3 6.9     Gross income 2,892.1 2,799.9 92.2 3.3     Gross margin 25.6% 26.5%     EBITDA 2,237.4 2,217.3 20.1 0.9     EBITDA margin 19.8% 21.0%     Operating income 1,824.1 1,834.3 -10.2 -0.6     Operating margin 16.2% 17.4%     Net income 1,168.6 990.9 177.7 17.9     Net margin 10.3% 9.4%

(*) Includes metals and FX hedging results.

Net sales of Ps11,293.1 were +Ps733.3 (+6.9%) higher, for the following reasons:
a) Higher volume, +Ps659.4, due to an increased volume of gold, silver, lead and magnesium sulfate sold;
b) Higher prices, +Ps354.4, on most products sold, except zinc and copper;
c) A higher average exchange rate, -Ps115.9 (Ps11.0121 vs. Ps10.8874 per dollar);
d) Lower losses from hedging transactions (futures and options) on metals and the exchange rate, -Ps235.8;
e) The effects of restating figures in constant pesos of the current quarter and others, Ps71.2.

The cost of goods sold rose +Ps641.2, incorporating the following changes:

(a) Higher production cost, +Ps110.5 (+5.2%), due to an increased cost of shopping and contractors, maintenance and repair, operating materials and personnel.
(b) Higher costs on metal--net of treatment fees--Ps621.7, due to higher prices, a higher exchange rate and a greater volume of metal purchased from outside sources.
(c) Inventory movements, consolidation and restatement effects, +Ps65.7.

The increase in net sales (+Ps733.3) was higher than the rise in the cost of goods sold (+Ps641.2), so gross income moved up by a slight +Ps92.2, and the gross margin (as a percentage of sales) was 25.6 percent.

Operating expenses--not including depreciation charges--totaled Ps654.6, a +Ps72.0 increase, resulting from :
a) Higher administration & general expenses, Ps30.7.
b) Higher prospecting expenses, Ps41.3, primarily because of a rise in prospecting in the Fresnillo district, the Herradura corridor and internationally.

As a result of the +Ps92.2 rise in gross income, which was offset partially by a +Ps72.0 rise in operating expenses, EBITDA went from Ps2,217.3 to Ps2,237.4, rising Ps20.1, and the EBITDA margin came to 19.8 percent of sales.

Total Financing Cost for the quarter was Ps83.9, against a cost of Ps78.9 in the preceding quarter.The +Ps5.0 change breaks down as follows:
a) Higher net interest expense, +Ps7.6, resulting from interest on short-term financing;
b) A -Ps119. Change in net foreign-exchange result, because of a foreign-exchange gain of Ps75.8 in the period, compared to a loss of -Ps43.2 in the year-earlier period; y
c) An increase of +Ps42.0 in net monetary losses due to deflation in this period, compared to inflation in the first quarter.

On the "other expenses" line, the result was an income of Ps81.0, primarily because of royalty income and the sale of unproductive assets, compared to an expense of Ps98.3 in the preceding quarter, which came from the provision for de-commissioning and restating fixed assets and mining works, and charitable donations.

The income tax and profit-sharing provision line showed a debit of Ps604.1, compared to Ps550.5 in the previous quarter.The increased charge (+Ps53.6) was caused by the rise in pretax earnings to Ps1,821.2, compared to Ps1,657.1 in the preceding quarter.

Equity in the income of associates resulted in a gain of Ps55.2 for Peñoles, reflecting its share in the income of companies in which it owns a minority stake.

Minority interest was a gain of Ps103.8, compared to the first-quarter figure of Ps110.9, due to lower results at La Herradura.

5.- PROYECTOS

At the El Saucito project, we moved ahead on construction of the shaft and prospecting ramp that will allow us to study mineralized bodies more precisely and extract the ore in the future. To date we have identified resources of more than 100 million equivalent ounces of silver.At the Juanicipio project, in partnership with Mag Silver of Canada, we have identified resources equivalent to more than 150 million ounces of silver.The Velardeña silver, zinc and lead project in Durango has yielded positive results, adding to the company's reserves.

6.- ASAMBLEA ANUAL DE ACCIONISTAS Y CONSEJO DE ADMINISTRACIÓN

In accordance with the resolution passed in the General Ordinary Shareholders' Meeting of April 25, 2007, a cash dividend of Ps5.50 pesos was declared on each of the 397,475,747 shares issued and outstanding, payable as of Wednesday, May 9.

Also, in the December 13, 2006 meeting, shareholders met for an extraordinary general meeting to vote on a proposal to change the company's corporate charter in order to comply with the new Securities Market Act.On December 14, 2006, Peñoles submitted a copy of the minutes including the changes to the bylaws to the CNBV and Indeval, and also informed the Mexican Stock Exchange and the General Public through the Emisnet system.

Among the changes made to the corporate charter were the insertion of the word "Bursátil" (meaning "Stock-Market") to the corporate name, which shall hereafter be known as "Industrias Peñoles, Sociedad Anónima Bursátil de Capital Variable" (Variable-Capital Stock-Market Corporation), or its abbreviation, "S.A.B. de C.V.", as well as adjustments necessary to comply with the Securities Market Act published in the Official Gazette of the Federation on December 30, 2005.

Attached to those meetings was the detailed and complete text of the Corporate Charter of Industrias Peñoles, showing the modifications made to articles 1, 6, 7, 9, 10, 12, 13, 15, 16, 17, 18, 19, 20, 21, 23, 24, 25, 32, 35, 37, 39, 44, and 45, of the Corporate Charter.

According to the new Securities Market Act, following the opinion of the Audit and Corporate Practices Committee, the Board of Directors is responsible for approving the compensation policies for key management.It also says that if a Board Member has some personal interest in a matter being voted upon in the Board Meetings, he or she must abstain from voting. This provision was also reflected in the approved statutory amendments.

In its March 26, 2007 meeting, and based on the opinion of the Audit and Corporate Practices Committee, the Board of Directors approved the policies and guidelines as established in Article 28 of the Securities Market Act.

Description of the securities: Class one, representing the minimum fixed capital, common, nominative and with no face value, with full voting rights. Ticker symbol: PE&OLES.The securities are listed in the securities section of the National Securities Registry and are listed on the Mexican Stock Exchange.The minority rights are the same as established in Article 14 bis 3 of the Securities Market Act.There are no trusts that limit the corporate rates conferred by the shares.