(Figures in millions of constant pesos)

• In fiscal year 2005, net income rose +57.2% over 2004, operating income increased +37.0%, EBITDA +22.0% and gross income +21.2%. all of these are record levels in the company's history.
• The company set a record in terms of its mines' output of total content of gold (376,091 ounces) and silver (47.4 million ounces), as well as in the mines at La Herradura (183,687 ounces of gold), La Ciénega (146,115 ounces of gold) and Fresnillo (33.9 million ounces of silver).
• Met-Mex turned out a record production of refined gold (1.1 million ounces) and silver (91.3 million ounces).
• Metals prices during the quarter averaged their highest levels in more than 18 years.

1.- EXECUTIVE SUMMARY

In the year ended December 31, 2005 billed sales —not including hedging and exchange-rate transactions— totaled Ps21,446.2, an increase of +23.9% over the preceding year. Gross income was Ps5,635.9, a growth of +21.2%, EBITDA was Ps3,807.9, up +22.0% and operating income ended the year at Ps2,624.6, +37.0%. Net income for 2005 totaled Ps1,693.0, rising +57.2% over the Ps1,077.0 reported in 2004. Each of these figures represents a record high in the company's history.

In dollar terms, billed sales totaled US$1,937.7 million and were +33.8% higher than in 2004.

These positive results were the result of:
(i) Higher prices on zinc +31.9%, lead +10.1%, silver +9.6% and gold +8.7%;
(ii) Higher sales volume of gold +48.2%, magnesium sulfate +17.9%, silver +12.6%, lead +8.9% and magnesium oxide +2.8%;
(iii) Net foreign-exchange gains of Ps59.7 as a result of the peso's revaluation against the dollar, compared to a net foreign-exchange loss of Ps32.3 in 2004;
(iv) Extraordinary revenues of Ps561.3 from the sale of the Mezcala gold project to Goldcorp in the first quarter of 2005; and
(v) The sale of excess electrical energy to CFE by Peñoles' thermoelectric plant during the testing and startup period, in the amount of Ps159.9.

All of these factors offset the peso's strength against the dollar, which affects the company because close to 95% of its revenues are dollar-denominated.In 2005, the average exchange rate was Ps10.8978 per dollar, -3.5% lower than the average in 2004.

The Cost of Goods sold rose +25.4% due to:
(i) Higher purchases of metal from outside parties by the Met-Mex metallurgical complex to complement its own mining production, and higher metals prices;
(ii) Higher energy costs (natural gas, fuel oil, diesel and metallurgic coke); and
(iii) Higher unit costs of inputs like steel, ammonia and explosives, among others, affected by factors like heavy demand from China and an increase in oil and petrochemical prices, and higher personnel costs.

However, the rise in metals prices improved concentrate treatment fees because of its favorable impact on the price scale, partially mitigating the impact of the aforementioned declines.

Investment in exploration rose +41.8% because of a more intense pace of work at Francisco I. Madero, Fresnillo, La Herradura, La Ciénega, and Pecobre, and regional exploration in Mexico. This exploration is bringing positive results and creates greater certainty for the long term.

On the monetary position effects line, a lower inflation index (3.33% compared to 5.19% in 2004) lowered net income by-Ps65.1.

As a result of the above-mentioned positive influences and revenues from sales at the Mezcala project and excess electrical energy, the Income Tax and profit-sharing provisions grew, as did minority interest, since the U.S. company Newmont Gold owns 44% of Mezcala.

The following table sums up these results:

	2005 2004 % change     Sales $21,247.7 $17,095.8 +24.3     Gross earnings 5,635.9 4,650.0 +21.2     EBITDA 3,807.9 3,120.5 +22.0     Operating income 2,624.6 1,916.1 +37.0     Total financing cost 141.3 199.0 (-29.0)     Interest Expense (Income) (442.3) 338.8 n/a     Net income 1,693.0 1,077.0 +57.2

Below are comments on the operating results in comparison to those of the year-earlier period,

In the Mining business, production of metallic content was higher than in the year-earlier period, as follows:
(i) Lead +7,759 metric tons (+14.3%) due to higher grade and greater recovery at Francisco I. Madero, La Ciénega and Fresnillo;
(ii) Gold +38,245 ounces (+11.3%) because of more efficient operations at La Herradura and higher milled ore at La Ciénega; and
(iii) Silver +2,971,499 ounces (+6.7%) due to the expansion of capacity at Fresnillo, which started up operations in September 204, and increased production at Francisco I. Madero and Sabinas.

Production of metallic content of gold (376,091 ounces) and silver (47.4 million ounces), as well as production by La Herradura (183,687 ounces of gold), La Ciénega (146,115 ounces of gold) and Fresnillo (33.9 million ounces of silver) all set annual records.

In the metals business, production of refined metal showed the following growth rates compared to the same period of last year:
(i) Gold +372,635 ounces (+49.3%), silver +10.9 million ounces (+13.5%) due to higher entries of content-rich materials at the lead foundry and the lead-silver refinery; and
(ii) Lead +10,906 metric tons (+8.3%) due to higher entries of content-rich materials at the lead foundry.

Production of gold (1.1 million ounces), silver (91.3 million ounces) and zinc (232,465 metric tons) were all annual records.

At the close of the period, Peñoles reported a total net debt of US$570.0mn, made up primarily of:
(i) A private offering for US$380.0 million in 1997, at a fixed rate of 8.39%, and which will begin repayment in 2006 through quarterly payments of US$15.2mn; and
(ii) US$142.0mn in drafts on a credit obtained in late 2004 for US$155.0mn, to build the Milpillas copper project, which will start up in the first half of 2006.

Construction of the Milpillas copper project in Sonora began testing in the fourth quarter of 2005. To date, the global physical progress of that project is 95.4%; the mine will turn out an average of 55,000 metric tons of fine copper a year.

In 2005, net fiscal-year earnings were Ps2,650.8, almost flat against 2004. Working Capital, however, grew by Ps919.2, the result of higher accounts receivable, which was in turn due to increased sales of gold and silver to the United States and higher inventories due to the receipt of imported materials rich in precious metal content, as well as higher metals prices. However, portfolio days shrank by a day (to 32.8 days at the close of 2005), and inventories by six days (to 81 days at the period's end).
Among the primary uses of resources were:
(i) Ps2,342.2 in property, plant and equipment, used mainly to build the Milpillas project, Fresnillo, Met-Mex and top expand the La Ciénega gold mine; and
(ii) Dividend payments of Ps536.7.

At the close of 2005, the total work force, excluding the employees of the water and railway affiliates, was 7,060 employees and unionized workers, 218 more than in 2004, mainly because recruitment for the work force at Milpillas was begun.

2.- ECONOMIC ENVIRONMENT AND METALS PRICES

	4Q04 2Q05 3Q05 4Q05     Inflation (%):     In the period 1.76 0.01 0.92 1.59     12 months 5.19 4.33 3.51 3.33     Exchange rate (pesos/dollar):     Close 11.2648 10.8428 10.8495 10.7109     Average 11.3272 10.9823 10.7129 10.7138

	Quotations Gold ( US$/Oz) Silver ( US$/Oz) Lead ( US$/lb) Zinc ( US$/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     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     %Chge. 4Q2005 vs 4Q2004 +11.9 +11.4 +9.5 +47.3     %Chge. 4Q2005 vs 3Q2005 +10.5 +14.3 +17.7 +26.5     %Chge. 4CQ2005 vs 4CQ2004 +8.7 +9.9 +10.2 +31.9

Quarterly highlights:

Gold: Average quotations in the quarter rose +10.5% over the third quarter of the year.The price of this metal reached a 24-year high and benefited from uncertainty in the financial markets over international events; rumors of the diversification of reserves by central banks; the dollar's weakness against the euro due to the economic slowdown in the United States; high demand from Asian countries; and a rising trend in oil and industrial metals.

Silver: Average quotations were +14.3% higher than in the immediately preceding quarter. Although silver maintained its correlation with gold and industrial metals, as well as the interest of speculative funds, the difference was in the possible launch of an instrument called the Silver ETF in the second quarter of the year. These factors helped push silver quotations to an 18-year high.

Lead: Average quarterly prices of this metal rose +17.7% over the third quarter, driven mainly by lower inventories; a scarcity of concentrate; the positive trend in industrial metals, and higher demand for batteries in Europe due to low temperatures in 2005.

Zinc: an increase of +26.5% in the average quotation compared to 3Q05, fueled by an ongoing decline in LME inventories, the revaluation of the yuan and an increase in demand from China, as well as the temporary shutdown of some refineries in that country and in Korea; the strike at the Trail mines (Teck Cominco) and Falconbridge, and negative effects from hurricane Katrina.

3.- OPERATING RESULTS

		Production Volume
	4Q04 3Q05 4Q05     Mining Division:     Ore milled (Mton) 1,963 2,039 2,117     Stacked deposited (a) (Mton) 2,139 1,824 1,772     Gold (kg) 2,673 2,925 3,137     Silver (ton) 372.6 393.3 380.1     Lead (ton) 13,801 15,631 16,378     Zinc (ton) 52,163 51,950 54,416     (a) La Herradura: open-pit mine.     Metals & Chemicals Division:     Gold (kg) 5,489 8,954 10,329     Silver (ton) 612.6 706.5 780.5     Lead (ton) 31,456 34,910 37,320     Zinc (ton) 62,473 61,988 64,181     Sodium sulfate (ton) 151,500 153,500 152,000     Magnesium oxide (ton) 20,010 23,155 21,090     Ammonium sulfate (ton) 52,044 47,618 51,627     Magnesium sulfate (ton) 4,300 8,650 7,200

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

*Change 4Q05 vs 4Q04 (12 months):
- Lead (+14.3%): higher grade at Francisco I. Madero, higher milled ore and grade at La Ciénega and higher milled ore at Fresnillo.

- Gold (+11.3%): Due to better recovery at La Herradura and higher milled ore at La Ciénega.

*Change 4Q05 vs. 4Q04:
- Lead (+18.7%): higher milled ore at La Ciénega and Naica, as well as higher grade and recovery at Francisco I. Madero and higher milled ore and higher grade at Fresnillo.
- Gold (+17.4%): higher milled ore at La Ciénega and higher rich solution treated at La Herradura.

*Change 4Q05 vs. 3Q05:
- Gold(+7.3%): higher milled ore and higher grade at La Ciénega.

Metals and Chemicals Division (production of refined metal):

*Change 4Q05 vs 4Q04 (12 months):
- Gold (+49.3%): higher entries of content-rich semi-processed materials at the lead-silver refinery.
- Silver (+13.5%): higher direct entries of content-rich concentrates both at the foundry plant and the refinery.
- Lead (+8.3%): higher entries of content-rich concentrates at the foundry plant.
- Magnesium oxide (+17.0%): higher demand for refractory-grade product on the export market, higher demand for caustic grade and hydroxide on the domestic market, due to inventory stockpiling to guarantee availability in 2006 for electrofuse operations and operating continuity.
- Ammonium sulfate (-11.3%): due to inventory controls in process at the lead foundry plant.

*Change 4Q05 vs. 4Q04:
- Gold (+88.2%): higher entries of content-rich semi-processed materials at the lead-silver refinery.
- Silver (+27.4%): higher entries of content-rich concentrates both at the foundry plant and the refinery.
- Lead (+18.6): higher entries of content-rich concentrates from the company's own mines to the foundry plant.
- Magnesium sulfate (+67.4%): increased inventories for the winter season.

*Change 4Q05 vs. 3Q05:
- Gold (+15.4%): higher entries of content-rich concentrate at the refinery.
- Silver: (+10.5%): entries of content-rich concentrate at the foundry plant.
- Lead (+6.9%): higher entries of content-rich concentrates from the company's own mines to the foundry plant.
- Magnesium oxide (-8.9%): Lower production due to adjustments in the sales program.
- Magnesium sulfate (-16.8%): difficulties with the supply of electricity and magnesium hydroxide.
- Ammonium sulfate (+8.4%): adjustments to market demand and operating continuity.

4.- FINANCIAL RESULTS

A) Comparison of cumulative results, 4Q05 vs. 4Q04:

	(Millions of pesos) 4CQ05 4CQ04 Chge. ($) % Chge.     Net sales (*) $21,247.7 $17,095.8 4,151.9 24.3     Gross income 5,635.9 4,650.0 985.9 21.2     Gross margin 26.5% 27.2 %     EBITDA 3,807.9 3,120.5 687.4 22.0     EBITDA margin 17.9% 18.3%     Operating income   2,624.6 1,916.2 708.4 37.0     Operating margin   12.4% 11.2%     Net income   1,693.0 1,077.1 615.9 57.2     Net margin 8.0% 6.3%

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

The primary changes are explained below:
Net sales were up +Ps4,151.9 (+24.3%) rising from Ps17,095.8 to Ps21,247.7. The growth breaks down as follows:
a) Higher sales volume +Ps3,120.5 due to higher sales of gold, silver, lead, magnesium oxide and magnesium sulfate, as well as concentrates sold to outside parties by the mining division;
b) Higher prices +Ps2,123.9 on practically all the products sold;
c) Lower metals and exchange-rate hedging losses, +Ps11.6;
d) Lower average exchange rate -Ps512.2 (Ps10.8978 vs Ps11.2879 per dollar); and
e) Effect of restating figures from previous year to constant pesos as of December 31, 2005, -Ps591.9.

In dollar terms, net sales were US$1,919.3 million, made up of a record level of billed sales, US$1,937.7 million, and hedging losses of US$18.4 million.

The increase of +Ps3,166.0 (+25.4%) in the cost of goods sold was the result of:
a) Higher production costs, +Ps537.6 (+8.7%) due to higher costs on the preventive maintenance line, to prolong the useful life of equipment; higher personnel costs, energy (higher unit cost of coke and diesel), and increased consumption and unit costs of natural gas) as well as higher costs of direct materials in the mining division;
b) Higher Metal costs--net of treatment fees-- +Ps2,475.1 primarily due to higher prices and a higher volume of metals purchased from third parties, offset by a lower exchange rate; and
c) Inventory movements, consolidation and restatement effects, +Ps153.3.

With the rise in net sales (+Ps4,151.9) and the less pronounced increase in the cost of goods sold (+Ps3,166.0), gross income was Ps5,635.9, rising by +Ps985.9 (+21.2%), so the gross margin (in proportion to sales) was 26.5 percent.

Operating expenses--excluding depreciation--totaled Ps1,828.0, +Ps298.5 (+19.5%) higher due to:
a) Higher exploration expenses, +Ps158.0, primarily due to greater activity in the areas of the Fresnillo, La Herradura and Francisco I. Madero mines, as well as higher regional exploration in Mexico; and
b) Higher SG&A expenses +Ps140.5.

Because of the rise in gross earnings (+Ps985.9), which more than made up for the increase in operating expenses (+Ps298.5), EBITDA was Ps3,807.9, an increase of +Ps687.4 (+22.0), so the EBITDA margin (in proportion to sales) was 17.9 percent.

Total financing cost came to Ps141.3, a decline of Ps57.8 from 2004; the change of -29.0% breaks down as follows:
a) Higher Net foreign-exchange gains, -Ps92.0 because in 2005, the peso appreciated 4.92% against the dollar, and depreciated 0.26% in 2004;
b) Lower Net financial expense -Ps30.9 due to Lower average exchange rate; and
c) Lower Monetary position effect +Ps65.1.

The other expenses (revenues) line shows a net income of Ps442.3, compared to a net expense of Ps338.8 the year before. The positive figure in 2005 was due mainly to the sale of the Mezcala gold project in Guerrero to the Goldcorp-Wheaton River company for a net Ps561.3, as well as the sale of shares of Milpo, the sale of idle fixed assets, and the sale of excess electrical energy by Termoeléctrica Peñoles to the CFE, for Ps159.9.

The income tax and profit-sharing provisions (net) show a charge of Ps1,072.8, an increase of +Ps755.9 over the same period of last year. This change is because pre-tax income was Ps2,925.6 in 2005, compared to earnings of Ps1,378.4 in 2004.

Equity in the earnings of unconsolidated affiliates declined by -Ps10.7, due mainly to a reduction in the earnings of those companies.

The minority interest line shows a profit of Ps218.5 in 2004, compared to Ps53.8 in 2004. The higher income was mainly the result of the joint venture with Newmont gold, which took a proportional share of the sale of the Mezcala gold project, and better operating results at the Tizapa and Penmont mining companies.


B) Comparison of results from 4Q05 to 3Q05:

	(Millions of pesos) 4Q05 3Q05 Chge. ($) % Chge.     Net sales (*) $6,120.7 $5,115.6 1,005.1 +19.6     Gross income 1,674.7 1,271.9 402.8 +31.7     Gross margin 27.4% 24.9%     EBITDA 1,141.6 825.9 315.7 +38.2     EBITDA margin 18.7% 16.1%     Operating income   941.4 496.6 444.8 +89.6     Operating margin   15.4% 9.7%     Net income   554.9 259.7 295.2 +113.7     Net Margin 9.1% 5.1%

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

Net sales totaled Ps6,120.7 rising +Ps1,005.1 (+19.6%), which breaks down as follows:
a) Higher volume, +Ps480.1, due to increased sales volume of gold, silver and lead, mainly;
b) Higher prices on most products, +Ps685.3.
c) Higher average exchange rate, Ps0.5 (Ps10.7138 vs. Ps10.7129 per dollar);
d) Higher losses on derivative trading--futures and options on metals and the exchange rate -Ps104.4;
e) Effect of restating figures in constant pesos of the current quarter and others, -Ps56.4.

The Cost of goods sold advanced +Ps602.3, due to higher costs of purchased metal, mainly because of increased quotations (+Ps461.0), in addition to increased consumption of raw materials, operating materials and maintenance of inside mine equipment; offset in party by higher revenues from concentrate treatment fees, the result of a higher fee scale, and entries from third parties.

The increase in Net sales (+Ps1,005.1) was higher than the growth in the cost of goods sold (+Ps602.3), so gross income rose +Ps402.8 and the gross margin moved up to 27.4 percent of sales.

Operating expenses--excluding depreciation--totaled Ps533.1, rising +Ps87.1 as the result of:
a) Higher exploration expenses, +Ps1.1, primarily due to exploration in the regions of Fresnillo, La Herradura and Pecobre; and
b) Higher SG&A expenses, +Ps86.0.

With gross earnings rising by +Ps402.8, offset mainly by increased operating expenses (+Ps87.1), EBITDA went from Ps825.9 to Ps1,141.6, an increase of Ps315.7, and the EBITDA margin was 18.7% in proportion to sales.

Total financing cost for the quarter was Ps40.8, compared to a cost of Ps39.7 in the preceding quarter. The change of +Ps1.1 breaks down as follows:
a) Lower Net financial expense, -Ps9.2;
b) An increase of +Ps6.8 in net foreign-exchange results because of a foreign-exchange loss of -Ps2.0 in the period resulting from a slight appreciation of the peso against the dollar, compared to a gain of +Ps4.8 in the preceding period (+Ps0.0067 per dollar); and
c) Lower Monetary position effect +Ps3.5.

The "other expenses" line reflects an outlay of Ps59.4 compared to Ps26.4 in the preceding quarter, due to an adjustment in the value of fixed assets relating to the cancellation of surcharges at Fresnillo.

The income tax and profit-sharing provision was a charge of Ps317.6 compared to Ps167.2 in the previous quarter. The higher charge for this most recent quarter (+Ps150.4) was the result of an increase in pretax earnings, which totaled Ps841.2, compared to Ps430.4 one quarter earlier.

Equity in the results of unconsolidated subsidiaries rose +Ps23.0, due to a growth in the profits of those companies.

Minority interest was a loss of Ps8.3, compared to a gain of Ps12.9 in the preceding quarter.

C) Comparison of 4Q05 vs. 4Q04:

	(Millions of pesos) 4Q05 4Q04 Chge. ($) % Chge.     Net sales (*) $6,120.7 $4,427.8 1,692.9 +38.2     Gross income 1,674.7 1,269.0 405.7 +32.0     Gross margin 27.4% 28.7%     EBITDA 1,141.6 874.3 267.3 +30.6     EBITDA margin 18.7% 19.7%     Operating income   941.4 574.9 366.5 +63.8     Operating margin   15.4% 13.0%     Net income   554.9 404.6 150.3 +37.2     Net Margin 9.1% 9.1%

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

The most important changes are outlined below:

Net sales totaled Ps6,120.7 an increase of +Ps1,692.9 (+38.2%) due to:
a) Higher sales volume, +Ps1,382.3, primarily of gold, silver, lead and concentrates sold by the mining division to outside parties;
b) Higher prices, +Ps887.6, on most of the products sold;
c) Lower average exchange rate (Ps10.7138 vs Ps11.3272 per dollar), -Ps323.8;
d) Higher foreign-exchange and metals hedging losses, -Ps130.5; and
e) Effect of restating results in pesos of the current quarter, -Ps122.7.

In dollar terms, net sales totaled US$568.6 million, made up of billed sales of US$581.6 million and hedging losses of US$13.0 million.

The Cost of goods sold increased +Ps1,287.2 for the following reasons:
a) Higher production costs, +Ps134.9 (+8.2%) due to higher cost of preventive maintenance performed on inside mine equipment, higher gas and electrical energy expenses, a rise in personnel costs due to higher bonuses and overtime, and an increase in shipping and contractor costs;
b) Higher Metal costs--net of treatment fees-- +Ps1,038.4 due to higher prices and higher volume of metal purchased from third parties, offset by a lower exchange rate; and
c) Inventory movements, consolidation and restatement effects, +Ps113.9.

Because the increase of +Ps1,692.9 in net sales was higher than the growth in the cost of goods sold (+Ps1,287.3), gross income gained +Ps405.7, so the gross margin (in proportion to sales) was 27.4 percent.

Operating expenses--excluding depreciation--came to Ps533.1, an increase of +Ps138.4 due to de:
a) Higher exploration expenses, +Ps25.9 mainly at Fresnillo, La Herradura and Francisco I. Madero;
b) Higher SG&A expenses, +Ps112.5.

Because of the rise in gross income (+Ps405.7), only some of which was absorbed by higher operating expenses (+Ps138.4), EBITDA gained +Ps267.3 (+30.6%) to Ps1,141.6. and the EBITDA margin was 18.7 percent.

With EBITDA higher by +Ps267.3 and depreciation charges down by -Ps99.2, operating income rose to +Ps366.5, and the operating margin was 15.4% of sales.

Total financing cost in this period was Ps40.8, comparing poorly against the gain of Ps7.6 reported in the same quarter of the preceding year. The +Ps48.5 change is attributed to:
a) Lower Monetary position effect, +Ps21.6 primarily because of a lower inflation index;
b) Higher net foreign-exchange losses, compared to a gain of +Ps20.2 in 2004; and
c) Higher Net financial expense +Ps6.7.

Other expenses (revenues) showed a charge of Ps59.4, compared to Ps320.3 in the year-earlier quarter, due to an adjustment in the value of fixed assets relating to the cancellation of surcharges at Fresnillo.

Income tax and profit-sharing provisions -net- totaled Ps317.6, an increase of +Ps435.3 over the year-earlier period. This is because pretax earnings were Ps841.2 in the fourth quarter of 2005, compared to Ps262.3 the year before.

Equity in the results of unconsolidated affiliates totaled Ps23.0, dropping -Ps14.6 due mainly to lower earnings by these companies.

The minority interest line showed a loss of Ps8.3, compared to a profit of Ps13.1 in the year-earlier quarter.

5.- PROJECTS.

Construction of the Milpillas copper project in Sonora began testing in the fourth quarter of 2005. To date, the global physical progress of that project is 95.4%; total investment should be US$217.8mn, and the mine will turn out an average of 55,000 metric tons of fine copper a year.