(All figures in millions of constant pesos)

• In January-September 2006, net income totaled Ps3,166.6 rising +171.8% over the same period of 2005; operating income came to Ps4,741.1, rising +158.2%, EBITDA was Ps5,726.5, up +109.8%, gross earnings totaled Ps7,377.2, a rise of +81.9% and net revenues came to Ps26,845.3, an increase of +73.4%. All of these are the highest for any similar period in the company's history.
• The average prices of metals in January-September 2006 were all higher than in the year-earlier period, as follows: zinc +128.9%, silver +58.3%, gold +39.3% and lead +23.6%.
• The volume of metal content produced in the mines, and of metals refined at the refinery, was also higher than in the first nine months of 2005.
• Production of refined gold totaled 1,191,770 ounces and of refined silver, 74.3 million ounces, a record for the January-September period.

1.- EXECUTIVE SUMMARY

In January-September 2006, total billed sales excluding the results of metals and exchange-rate hedging totaled Ps28,539.4, an increase of +83.6% over the year-earlier period. In dollar terms, this was equivalent to US$2.58 billion, a nine-month record in the company's history.

Additionally, gross earnings were reported at Ps7,377.2, rising +81.9%, EBITDA was Ps5,726.5, up +109.8% and operating income rose to Ps4,741.1, +158.2%. Net income of Ps3,166.6 was a considerable improvement (+171.8%) over the Ps1,165.1 reported in the same period of 2005. In dollar terms, gross earnings came to US$666.9 million, EBITDA was US$517.7 million and operating income was US$428.4 million; all of these mark record figures for this nine-month period.

These positive results were caused by:

(i) Higher average quotations on the metals the company mines, processes and sells, as follows: zinc +128.9%, silver +58.3%, gold +39.3% and lead +23.6%;
(ii) Higher metal content produced in the mining business, particularly at Fresnillo, La Ciénega and Naica;
(iii) Higher volume produced and sold in the metals business. Gold and silver production reached record levels for the nine-month period;
(iv) Higher volume of magnesium sulfate and ammonium sulfate produced and sold in the industrial chemicals business;
(v) Higher revenues from the treatment of concentrate for third parties (+Ps958.9);
(vi) Extraordinary revenues from the sale of the Pinos Altos gold project (Ps961.9); similarly, in the same period of 2005 Peñoles entered revenues from the sale of the Mezcala gold project (Ps574.6); and;
(vii) Lower minority interest, because in 2005 Newmont Gold (U.S.) took 44% of the Mezcala sale.

The encouraging figures mentioned above were offset in part by:

(a) Metals hedging activity--the expiration of hedges brought an expense of Ps1,694.1 (vs. Ps60.3 in 2005), primarily the result of a sharp rise in metals quotations.The hedges that brought these losses were taken out in previous years to guarantee the company's profit margins, but because the percentage of unhedged production was higher, the company enjoyed the benefits of higher metal prices on this incremental volume;
(b) The peso's strength against the dollar.In the first nine months of 2006, the average exchange rate was Ps10.90, vs. Ps10.95 in the same period of 2005;
(c) Higher average unit cost of metallurgical coke (+4.3%);
(d) Lower production at the Francisco I. Madero, Sabinas and Bismark facilities;
(e) Higher unit costs on operating materials; higher cost for haulage due to a greater volume carried and a more intense pace of mine development; higher maintenance and repair costs and a rise in personnel costs.
(f) The peso's devaluation against the dollar by the end of the period brought foreign-exchange losses of Ps71.3, compared to a net foreign-exchange gain of Ps63.1 in the same period of 2005 (a change of Ps134.4).
(g) Higher income tax and profit-sharing provision (+Ps1,160.2) because of better results and higher extraordinary revenues from the sale of Pinos Altos.

The table below sums up these results:

	3Q2006 3Q2005 % Chge.     Net revenues (*) Ps 26,845.3 Ps 15,485.8 +73.4     Gross earnings 7,377.2 4,055.1 +81.9     EBITDA 5,726.5 2,729.5 +109.8     Operating income 4,741.1 1,836.3 +158.2     Total Fin. Cost 202.1 102.8 +96.6     Other expenses (proceeds) (795.6) (400.3) +98.8     Net income 3,166.6 1,165.1 +171.8

(*) Includes the results of metals and exchange-rate hedging.

The results were favored by strong operating performance from the various businesses, as described below:

The mining business turned out more metal content than in the same period of 2005, breaking down as follows:
(i) Gold +14,435 ounces (+5.2%) because of a capacity expansion at La Ciénega that began operating in March 2005;
(ii) Silver +1.3 million ounces (+3.6%) mainly at Fresnillo due to higher milling capacity resulting from the stabilization of the capacity expansion that began operating at the end of 2004, and higher production at Naica due to higher milling and grade; and
(iii) Lead +2,795 metric tons (+6.1%) due to higher milling and grade at Naica and Fresnillo.

In the metals business, refined metal production also advanced over the 2005 levels, as described below:
(i) Gold +395,153 ounces (+49.6%) due to an increase in content-rich materials received from third parties at the lead-silverrefinery;
(ii) Silver +8.0 million ounces (+12.1%) due to an increase in content-rich materials received at the lead-silvercircuit;
(iii) Lead +2,871 metric tons (+2.7%) due to a reduction of inventories in process; and
(iv) Zinc +10,845 metric tons (+6.4%) due to operating continuity and higher entries of concentrates.

In January-September 2006, the amount of cash flow derived from net earnings totaled Ps3,625.9, compared to Ps2,190.2 in the year-earlier period, a gain of +65.6%. Among the main uses of cash were:
(i) An increase of Ps1,746.7 in working capital, specifically:
---a) An increase in client accounts receivable due to a rise in the price of all the metals, although turnover rose only 0.7 days from December 2005 to September 2006 (when it closed at 33.5 days);
---b) A rise in inventories due to higher metals prices and the entry of materials rich in silver content and higher zinc content;
(ii) Investment in property, plant and equipment, a total of Ps1,955.9 for concluding the Milpillas project and replacing equipment and projects mainly at Met-Mex, Fresnillo, Penmont and Química del Rey.
(iii) Payment of Ps874.3 in dividends to shareholders of Industrias Peñoles and minority partners.

Construction of the Milpillas copper project in Sonora is complete. In the second half of August the facility began commercial production, turning out 244 metric tons of fine copper (LME Grade A--the highest quality) in the form of cathodes.In 2006 it is expected to produce 3,400 metric tons.Once the mine and the solvent extraction and electrodeposition plant reach capacity, this mine should be able to produce an average of 55,000 metric tons a year.Total direct investment in this project will be US$237.0 million.

The results of this quarter show a marked improvement against the third quarter of 2005.

Net revenues came to Ps9,489.0, an increase of +81.2%, Gross earnings were Ps2,547.0, +95.6%, EBITDA was Ps1,951.1, +130.8%, operating income totaled Ps1,580.4, +189.4% and net income was Ps1,031.8, +288.2%. These improvements can be attributed to a higher average exchange rate, higher metals prices, a higher volume of metal gold and copper content produced in the mining business, a higher volume of refined gold in the metal business, a charge under total financing cost (vs. a gain in the third quarter of 2005), and higher equity in the results of unconsolidated subsidiaries and affiliates.

Comparing the 3Q06 results against those of the immediately preceding quarter, net income was down by -8.2%, Gross earnings were off -10.4%, EBITDA down -13.3% and operating income down -18.1%. The declines were cause by:
(i)Lower average exchange rate (-1.8%);
(ii) Lower silver quotations (-4.7%);
(iii) Lower content of silver, lead and zinc produced in the mining business, for the following reasons:

a) At Fresnillo, lower-grade reserves were exploited to take advantage of high silver prices--this content would otherwise be lost in this type of mining, and recovering it now extends the life of the mine;
b) Sabinas turned out a lower content of lead due to lower grade, but this is a temporary situation, because there are bodies of copper and lead ore that can be exploited in the moths ahead once the copper-lead separation plant is complete, allowing it to produce a higher content of both metals.
c) At Bismark, zinc production was lower because an excess of water in the lower portions of the mine made it preferable to mine stopes rich in copper and silver content in the upper regions of the mine.

(iv) Lower production of gold, silver and lead in the meals division due to an annual maintenance shutdown in the third quarter, which will allow the facilities to continue operating efficiently next year.

Net income rose +5.5% in the third quarter compared to the second quarter, because of foreign-exchange gains resulting from the peso's revaluation and higher monetary position gains, combined with a rise in equity in the results of unconsolidated subsidiaries and associates.

2.- ECONOMIC ENVIRONMENT AND METALS PRICES

	3Q05 1Q06 2Q06 3Q06   Inflation (%):     In the period 0.97 0.87 (0.18) 1.50   12 months 3.56 3.42 3.23 3.79   FX rate (pesos/dollar):     At the close 10.8495 10.9510 11.3973 11.0502   Average 10.7129 10.5839 11.1626 10.9637

	Gold ( US$/Oz) Silver ( US$/Oz) Lead ( US¢/lb) Zinc ( US¢/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     2nd quarter 2006 627.40 12.22 49.91 149.33     3rd quarter 2006 621.50 11.65 53.96 152.56     % Chge. 3Q06 vs 3Q05 +41.4 +64.8 +33.4 +159.4     % Chge. 3Q06 vs 2Q06 -0.9 -4.7 +8.1 +2.2     % Chge. 3Q06A. vs 3Q05YTD +39.3 +58.2 +23.6 +128.9

Highlights of the quarter:

Gold: Average quotations dropped -0.9% from the second to the third quarter of the year, reaching a 25-year high amid high dollar quotations, geopolitical tensions (Iran, Israel, Lebanon and North Korea), interest among mutual funds, a rise in some commodities prices and the possibility the People's Bank of China would diversify some of its gold reserves.

Silver: Average quotations were -4.7% lower than in the second quarter of the year, after reaching a 22-year high with the launch of the Silver Exchange Trade Fund (ETF) in April, and influenced by the euro's strength against the dollar and its correlation with gold prices.

Lead: The average price of lead in the third quarter was +8.1% higher than the previous quarter, pushed up by problems with pollution in China's Yellow River caused by operations at the Zhuzhou refinery, interest among mutual funds, inventory movements among some vaults at the LME and the influence of zinc and copper prices.

Zinc: average quotations rose +2.2% over the immediately preceding quarter, helped by strikes that paralyzed mines and production plants at Grupo México; difficulties at the Red Dog company in sending zinc concentrates to the refinery, a sharp drop in inventories in recent months, the influence of copper prices, mutual fund interest, and expectations of higher demand for industrial metals in China.

3.- OPERATING RESULTS: PRODUCTION VOLUME

	Unit 3Q05 2Q06 3Q06     Mining Division:     Milled ore (Mtons) 2,039 2,093 2,095     Deposited ore (a) (Mtons) 1,824 2,226 2,188     Gold (kg) 2,925 2,976 3,084     Silver (tons) 393.3 394.0 365.4     Lead (tons) 15,631 16,706 15,120     Zinc (tons) 51,950 54,123 47,730     (a) La Herradura: open - cut mine.     Metals and Chemicals Division:     Gold (kg) 8,954 13,311 12,877     Silver (tons) 706.5 790.4 764.3     Lead (tons) 34,910 36,915 34,521     Zinc (tons) 61,988 61,534 64,246     Sodium sulfate (tons) 153,500 151,000 155,500     Magnesium oxide (tons) 23,155 23,297 19,402     Ammonium sulfate (tons) 47,618 53,535 45,596     Magnesium sulfate (tons) 8,650 10,500 9,600

Mining Division (metal content in concentrates and other materials):
* Change 3Q06 YTD vs. 3Q05 YTD:
- Lead (+6.1%): Due to higher grade and milled ore at Fresnillo and Naica, combined with higher recovery and milled ore at Tizapa.
- Gold (+5.2%): Due to higher milled ore and recovery at La Ciénega, higher milled ore and grade at Fresnillo and Naica, higher deposited ore and recovery at La Herradura.
- Silver (+3.6%): Due to higher grade and milled ore at Naica and Bismark, higher milled ore at Fresnillo and higher recovery at Francisco I. Madero and La Herradura.

* Change 3Q06 vs. 3Q05:
- Gold (+5.4%): Due to higher deposited ore at La Herradura and La Ciénega, combined with higher recovery at Tizapa.
- Lead (-3.3%): Due to lower grade and recovery at La Ciénega and Sabinas.
- Silver (-7.1%): Due to lower grade and recovery at Fresnillo, combined with Lower grade at la Ciénega and Sabinas.
- Zinc (-8.1%): Due to lower grade and recovery at Bismark, Lower grade at La Ciénega and Lower recovery at Fresnillo.

* Change 3Q06 vs. 2Q06:
- Gold (+3.6%): Due to higher grade and milled ore at La Ciénega and higher recovery at La Herradura and Tizapa.
- Silver (-7.3%): Due to lower grade and recovery at Fresnillo, Sabinas and La Ciénega, combined with Lower recovery and milled ore at Naicaand La Ciénega, combined with Lower recovery and milled ore at Naica.
- Lead (-9.5%): Due to lower grade and recovery at Sabinas, Lower grade at Fresnillo, and Lower milled ore and grade at NaicaLower grade at Fresnillo, and Lower milled ore and grade at Naica.
- Zinc (-11.8%): Due to lower grade, milled ore and recovery at Bismark, combined with Lower grade at Naica and Fresnillo.


Metals division (production of refined metal):
* Change 3Q06 vs. 3Q05 YTD:
- Gold (+49.6%): higher entries of semi-processed materials from third parties at the lead-silver refinery.
- Silver (+12.1%): higher direct entries de content-rich concentrates at the lead-silver refinery, combined with higher entries of proprietary materials to the lead foundry.
- Zinc (+6.4%): Due to higher entries of content-rich concentrates from both proprietary mines and third parties and operating continuity. There were some problems with the supply of electricity during this quarter.
- Lead (+2.7%): higher entries of content in concentrates from proprietary mines to the smelting plant, and a reduction of inventories in process.
- Magnesium sulfate (+36.7%): Due to higher reaction production and a stronger position in the domestic market.
- Ammonium sulfate (+3.1%): Due to reduction of acid inventories and higher receipts of solution.
- Magnesium oxide (-8.6%): Due to difficulties in the rotating furnace and an adjustment to sales needs.

*Change 3Q06 vs. 3Q05:
- Gold (+43.8%): higher receipts of content-rich semi-processed materials from third parties at the lead-silver refinery.
- Silver (+8.2%): Due to reduction of inventories in process.
- Zinc (+3.6%): Due to operating continuity and Due to higher entries from third parties at the zinc refinery.
- Magnesium sulfate (+11.0%): Due to a stronger position in the domestic market.
- Magnesium oxide (-16.2%): Due to plant difficulties and adjustment to market demand.

* Change 3Q06 vs. 2Q06:
- Zinc (+4.4%): higher entries of content in concentrates from proprietary mines to the zinc refinery, and operating continuity.
- Lead (-6.5%): Due to lower entries of content in concentrates from proprietary mines and from third parties to the lead smelting plant.
- Sodium sulfate (+3.0%): preventive maintenance at the plant reduced production levels.
- Magnesium oxide (-16.7%): Plant difficulties and adjustments to electrical properties.
- Magnesium sulfate (-8.6%): Because second-quarter production levels were raised to meet demand.

4.- FINANCIAL RESULTS

A) Comparison of results, 3Q06 YTD vs. 3Q05 YTD:

	(Millions of pesos) 3TA06 3TA05 Chge (Ps) % Chge.     Net revenues (*) Ps26,845.3 Ps15,485.2 11,360.1 73.4     Gross earnings 7,377.2 4,055.0 3,322.1 81.9     Gross margin 27.5% 26.2%     EBITDA 5,726.5 2,729.5 2,997.0 109.8     EBITDA margin 21.3% 17.6%     Operating income 4,741.1 1,836.3 2,904.8 158.2     Operating margin 17.7% 11.9%     Net income 3,166.6 1,165.1 2,001.6 171.8     Net margin 11.8% 7.5%

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

The main changes are highlighted below:

Higher Net revenues, +Ps11,360.1 (+73.4%), from Ps15,485.2 to Ps26,845.3. The increase was driven by the following factors:
a) Higher sales volume +Ps4,045.9 due to higher sales of gold, silver, zinc, magnesium sulfate and ammonium sulfate, and higher third-party sales of concentrates in the mining division;
b) Higher prices +Ps8,052.9 on virtually all the products sold;
c) Higher metals and exchange-rate hedging losses -Ps1,633.8;
d) Lower average exchange rate -Ps68.5 (Ps10.9034 vs Ps10.9591 per dollar); and
e) Effects of restating figures of the current year in constant pesos of September 30, 2006 and others, +Ps963.6.

In dollar terms, net revenues totaled US$2,425.1 million, made up of a record level of (billed) sales, US$2,577.5 million, and hedging losses of US$152.4.

The rise of +Ps8,038.0 in the cost of goods sold (+70.3%) was caused by:
a) Higher Production costs +Ps663.9 (+13.2%) resulting from higher operating materials costs in the mining division, preventive maintenance to extend the useful life of equipment, contractors hired for footing and anchoring work in the mining division, and a rise in personnel costs;
b) Higher metal costs-–net of treatment fees--+Ps7,007.0 mainly due to higher prices and a higher volume of metal purchased from third parties, offset by a lower exchange rate; and
c) Inventory movements, consolidation and restatement effects, +Ps367.1.

The increase in net revenues (+Ps11,360.1) combined with a lower increase in the cost of goods sold (+Ps8,038.0) raised gross earnings by +Ps7,377.2, an increase of +Ps3,3221.1 (+81.9%), bringing the gross margin (as a percentage of sales) to 27.5 percent.

Operating expenses--ex depreciation--came to Ps1,650.7, advancing +Ps325.1 (+24.5%) due to:
a) Higher Prospecting expenses +Ps77.6 mainly due to an increase in the pace of activity at Fresnillo, La Herradura and Francisco I. Madero, combined with higher regional prospecting in México; and
b) Higher SG&A Expense +Ps247.5.

Because the improvement in gross earnings (+Ps3,322.1) more than made up for the increase in operating expenses (+Ps325.1), EBITDA rose to Ps5,726.5, up +Ps2,997.0 (+109.8%), and the EBITDA margin (in proportion to sales) ended the period at 21.3 percent.

Total financing cost was Ps202.1, an increase of Ps99.2 over the year-earlier period, the result of the following factors:
a) A net foreign-exchange loss of Ps71.3, compared to a gain of Ps63.1 in 2005. In 2006 the peso lost 3.17% against the dollar, compared to a 3.69% appreciation in 2005;
b) Higher Net monetary position effect +Ps55.1, the result of a rise in the accrued monetary position effect for January-September 2006 over the same period of 2005; and
c) Higher Net interest expense +Ps19.9.

Under other expenses (proceeds), the result is a net gain of Ps795.6, compared to a net gain of Ps400.3 the year before. The 2006 figure was influenced by the sale of the Pinos Altos project to Agnico Eagle and the premium on stock sales; while the 2005 result was helped by the sale of the Mezcala gold project in Guerrero to Goldcorp-WheatonRiver.

The income and profit-sharing provision line (net) showed a charge of Ps1,933.2, rising +Ps1,160.2 over the year-earlier period.The change was due to pretax gains of Ps5,334.6 in 2006, compared to Ps2,133.8 in the same period of 2005.

Equity in the results of unconsolidated subsidiaries declined, chiefly because of losses among the companies in which Peñoles holds a minority position, totaling Ps49.5, compared to a profit of Ps36.5 in January-September 2005 .

The minority interest line shows a gain of Ps185.3 in 2006, compared to the 2005 gain of Ps232.2.The drop in income was due primarily to the comparison against a period in which El Bermejal was sold in 2005, although the results at Penmont and Tizapa were better in 2006.

B) Comparison of results for 3Q06 vs. 3Q05:

	(Millions of pesos) 3Q06 3Q05 Chge (Ps) % Chger     Net revenues (*) Ps9,489.1 Ps5,236.2 4,252.9 81.2     Gross earnings 2,547.0 1,301.9 1,245.1 95.6     Gross margin 26.8% 24.9%     EBITDA 1,951.1 845.4 1,105.7 130.8     EBITDA margin 20.6% 16.1%     Operating income 1,580.4 546.0 1,034.4 189.4     Operating margin 16.7% 10.4%     Net income 1,031.8 265.8 766.0 288.2     Net margin 10.9% 5.1%

(*) Includes metals and exchange-rate hedging results.

The biggest changes are shown below:

Net revenues came to Ps9,489.1, an increase of +Ps4,252.9 (+81.2%) driven by the following:
a) Higher sales volume, +Ps1,248.9 mainly of gold, silver and concentrates sold to third parties by the mining division;
b) Higher prices +Ps3,213.5 on most of the products sold;
c) Higher average exchange rate (Ps10.9637 vs Ps10.7129 per dollar) +109.2;
d) Higher metals and exchange-rate hedging losses -Ps678.6; and
e) Effects of restating figures of the current year in constant pesos of September 30, 2006 and others, +Ps359.9.

In dollar terms , net revenues totaled US$859.3 million, made up of billed sales of US$924.1 million and hedging losses of US$64.8 million.

The cost of goods sold rose +Ps3,007.8 due to the following:
a) Higher Production costs +Ps222.1 (+12.6%) resulting from higher operating materials costs in the mining division, preventive maintenance to extend the useful life of equipment, contractors hired for footing and anchoring work in the mining division, and a rise in personnel costs due to new hirings at Milpillas.
b) Higher metal costs--net of treatment fees--+Ps2,629.8 Due to higher prices, higher volume de metals purchased from third parties and a higher average exchange rate; and
c) Inventory movements, consolidation and restatement effects, +Ps155.9.

Because the increase of +Ps4,252.9 in net revenues more than made up for the rise in the cost of goods sold, +Ps3,007.8, gross income was higher, +Ps1,245.1, and the gross margin (in proportion to sales) was 26.8 percent.

Operating expenses--excluding depreciation--totaled Ps595.9, an increase of +Ps139.3 resulting from:
a) Higher Prospecting expenses +Ps39.9 mainly at the Fresnillo and La Herradura mines;
b) Higher SG&A Expense +Ps99.4.

Because of the rise in gross earnings (+Ps1,245.1), some of which was absorbed by an increase in operating expenses (+Ps139.3), EBITDA moved up to Ps1,951.1, +Ps1,105.7 (+130.8%), and the EBITDA Margin was 20.6 percent.

Because of the rise in EBITDA (+Ps1,105.7), offset in part by a rise in depreciation (+Ps71.3), operating income advanced +Ps1,034.4, to 16.7% of sales.

In this period, Peñoles reports a total financing cost of Ps58.8, compared to a Ps40.7 charge in the third quarter of Ps40.7. The change breaks down as follows:
a) Net monetary position effect de Ps111.2 mainly due to a higher inflation index, compared to a net monetary position gain of Ps35.8 in 2005, an improvement of Ps75.4;
b) Net foreign-exchange gains of Ps58.3 compared to a loss of -Ps4.9 in 2005, meaning a positive change of Ps53.5; and
c) Higher Net interest expense, +Ps29.4.

The other expenses (proceeds) line contains a charge of Ps66.8, compared to Ps64.8 in the same quarter of last year.

The net income tax and profit-sharing provision line was Ps583.1, an increase of +Ps411.9 over the same period of last year, the result of pretax earnings of Ps1,572.4 in the third quarter of 2006, compared to a lower profit of Ps440.6 in the same period of 2005.

Equity in the results of unconsolidated associates totaled Ps110.4, a change of -Ps100.8 due primarily to the entry of higher results in the companies in which Peñoles owns a minority interest.

The minority interest line shows a gain of Ps67.9, compared to the 3Q05 gain of Ps13.2.


C) Comparison of results 3Q06 vs 2Q06:

	(Millions of pesos) 3Q06 2Q06 Chge (Ps) % Chge     Net revenues (*) Ps9,489.1 Ps10,339.3 (850.2) (8.2)     Gross earnings 2,547.0 2,841.3 (294.2) (10.4)     Gross margin 26.8% 27.5%     EBITDA 1,951.1 2,251.5 (300.3) (13.3)     EBITDA margin 20.6% 21.8%     Operating income 1,580.4 1,929.5 (349.1) (18.1)     Operating margin 16.7% 18.7%     Net income 1,031.8 978.2 53.6 5.5     Net margin 10.9% 9.5%

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

Net revenues in the quarter were Ps9,489.1, a decline of -Ps850.2 (-8.2%) from the preceding quarter, due to:
a) A drop in volume, -Ps292.1 due to lower sales volume of gold, zinc, lead, magnesium oxide and ammonium sulfate;
b) Lower prices -Ps61.0 due to Lower prices on silver, gold and ammonium sulfate;
c) Lower average exchange rate -Ps173.3 (Ps10.9637 vs. Ps11.1626 per dollar);
d) Higher metals and exchange-rate hedging gains +Ps12.0;
e) Effects of restating figures of the current year in constant pesos of September 30, 2006 and others, -Ps335.8.

The cost of goods sold declined by -Ps555.9, because the cost of purchased metal dropped with a decline in gold and silver quotations (-Ps513.5), a reduction of energy costs because of a decline in the cost of electrical energy, and a decline in the cost of raw materials.

The reduction in net revenues (-Ps850.2) was greater than the rise in the cost of goods sold (-Ps555.9), reducing gross earnings by -Ps294.2 and bringing the gross margin to 26.8 percent of sales.

Operating expenses--excluding depreciation charges--totaled Ps595.9, an increase of +Ps6.0 caused by:
a) Higher prospecting expenses +Ps10.5, mainly due to higher exploration at Fresnillo and La Herradura.
b) Lower SG&A Expense, -Ps4.5.

Because of the decline in gross earnings (-Ps294.2), combined with a slight rise in operating expenses (+Ps6.0), EBITDA dropped from Ps2,251.5 a Ps1,951.1, a reduction of Ps300.3, and the EBITDA Margin was 20.6 percent of sales.

Total financing cost was -Ps58.8 in the quarter, compared to a charge of Ps230.7 in the prior quarter. The change of -Ps289.5 was caused by the following elements:
a) Higher net interest expense, +Ps17.4;
b) A change of -Ps179.8 in net foreign-exchange results, with a gain of Ps58.3 compared to a loss of Ps121.5 in the preceding quarter; and
c) Net monetary position effect de -Ps111.2, compared to a loss of Ps15.8 in the previous quarter, meaning a positive change of Ps127.1.

The other expenses (proceeds) line shows a charge of Ps66.8, compared to Ps20.2 in the second quarter, due to the cost of lead roasting at Met-Mex.

The income tax and profit-sharing line presents a charge of Ps583.1 compared to Ps625.5 in the previous quarter. The lower charge in the third quarter (-Ps42.4) was due to a decline in pretax earnings: Ps1,572.4 in the third quarter compared to Ps1,678.6 in the second.

Equity in the results of unconsolidated affiliates was a gain of Ps110.4, due to the entry of results from companies in which Peñoles holds a minority stake.

Minority interest was a credit of Ps67.9 in the third quarter, compared to a Ps70.8 credit in the previous quarter, declining as a result of lower earnings at Penmont, offset in part by higher gains from Tizapa.


5.- PROJECTS

Construction of the Milpillas copper project in Sonora is complete.Commercial production began in the second half of August, and in 2006 it is expected to produce a total of 3,400 metric tons. Total direct investment in the project will be Ps237.0 million.