Average prices on metals between January and June 2006 were higher than in the first half of 2005: zinc +113.7%, silver +54.9%, gold +38.3% and lead +19.2%.
	The volume of metal content and refined metals produced were both higher than in the first half of 2005, as was the volume of refined metal sold.Production of refined gold reached 777,760 ounces and refined silver reached 49.7 million ounces, a record for a half-year period. In addition, quarterly production levels--427,960 ounces of refined gold and 25.4 million ounces of refined silver--were quarterly records as well.
	In the first half of the year, operating income was +145.0% higher than in the same half of last year, net income rose +137.4%, EBITDA +100.4% and Gross income +75.4%. All of these mark records in the company's history.
	Similarly, in the second quarter of 2006, operating income was Ps1,899.9, +233.0% higher than in the same quarter of 2005, while net income of Ps963.2 was +202.4% higher, EBITDA was Ps2,216.9, up +154.5%, and gross income was Ps2,797.7, rising +113.6%.

Mexico City, July 28, 2006. Industrias Peñoles, S.A. de C.V. (BMV ticker symbol: PE&OLES), reported that in the first half of 2006, billed sales (not including metals and exchange-rate hedging results) totaled Ps18,054.9, rising +78.5% over the same period of the previous year. In dollar terms, this is equivalent to US$1,653.3 million, the highest in any six-month period in the company's history.


In addition, gross income totaled Ps4,756.2, an increase of +75.5%, EBITDA was Ps3,717.6, up +100.4% andoperating income came to Ps3,112.4, an increase of 145.0%.Net income was Ps2,102.2, comparing favorably (+137.4%) against the Ps885.3 reported in the same period of 2005. In dollar terms, gross income was US$436.5 million,EBITDA US$341.2 million and operating income US$285.5 million, all of them half-year records.

These positive results were due to:

(i) Higher average quotations on the metals the company mines, processes and sells, as follows: zinc +113.7%, silver +54.9%, gold +38.3% and lead +19.2%;
(ii) Higher metal content produced in the mining business, particularly at Fresnillo and Ciénega ;
(iii) Higher volume processed and sold in the metals business (production of gold and silver reached a quarterly record);
(iv) A higher volume of magnesium sulfate and ammonium sulfate produced and sold in the Industrial Chemicals Division;
(v) Higher revenues from third-party treatment fees (+Ps477.8);
(vi) A lower average unit cost on electricity (-2.7%);
(vii) Higher extraordinary revenues due to the sale of the Pinos Altos gold project (Ps948.1); while in 2005, the company reported revenues on the sale of the Mezcala gold project (Ps565.9); and
(viii) Lower minority interest, because in 2005, Newmont Gold (EUA) took 44% of the proceeds from the Mezcala sale.

The positive factors listed above offset the adverse effects of the following:

(a) The peso's strength against the dollar--in the first half of 2006, the averageexchange rate was Ps10.87 vs. Ps11.08 in the same period of 2005;
(b) Higher average unit costs of natural gas (+12.6%) and metallurgical coke (+3.6%);
(c) The peso's devaluation against the dollar toward the end of the period translated into net foreign-exchange losses of Ps127.7, compared to a net foreign-exchange gain of Ps57.4 in the same period of 2005 (a change of Ps185.51); and
(d) Higher income tax and employee profit-sharing provisions (+Ps736.9) because of better results and extraordinary earnings on the sale of Pinos Altos.

Another negative aspect in this period was the expiration of hedge contracts (futures and options), which brought a loss of Ps964.5, mainly because of a sharp rise in metals quotations.These hedges were taken out in earlier years to protect the company's profit margins in the event of volatility.In any case, because a greater proportion of the company's sales were not hedged, the rise in metals prices meant higher revenues on the unhedged portion.

Owing to higher personnel costs, increased fuel costs (natural gas, diesel and metallurgic coke), a rise in some raw materials costs like ammonia, and greater operating costs (steel, explosives and reactives), production costs rose +13.5%. Also, because of an increase in purchases of metal from third parties at the Met-Mex metallurgical complex in order to maximize capacity utilization, and higher prices on metals in general, the cost of goods sold rose +67.1%. However, higher metals prices also meant an increase in third-party treatment fees because of its impact on the price scale, and this offset some of the effects of those cost increases.

The following table sums up the above information:

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


The results were favored by strong operating performance in the group's various businesses, as follows:

In the mining business, production of metallic content was higher than in the same period of last year:
(i) Gold +9,324 ounces (+5.1%) thanks to a capacity expansion at LaCiénega that started up in March 2005;
(ii) Silver +2.2 million ounces (+9.6%) primarily at Fresnillo, due to higher volume of milling resulting from a stabilization of the capacity expansion that went on line at the end of 20004, and higher grade; and
(iii) Lead +3,306 metric tons (+11.0%) due to higher milling and grade at Naica and Fresnillo.

The metals business produced more refined metals than in the same six months of 2005, as follows:
(i) Gold +269,005 ounces (+52.9%) due to higher entries of content-rich materials at the lead-silver refinery, and a reduction in inventories;
(ii) Silver +6.2 million ounces (+14.2%) due to higher entries of content-rich materials at the lead-silver refinery;
(iii) Lead +3,258 metric tons (+4.6%) due to higher entries of content-rich materials at the lead-silver refinery; and
(iv) Zinc +8,587 metric tons (+8.1%) due to operating continuity.

In the second quarter of 2006, Industrias Peñoles concluded the process of renegotiating and funding a new private placement of US$377.0 million among institutional investors in the United States. The proceeds of the placement were used to restructure part of the long-term debt called "Structured Silver Payable Notes", maturing in 2012, as well as to finance future growth projects for the company.Accordingly, at the close of this quarter Peñoles' total debt amounted to US$728.3 million, most of it long-term, as detailed below:

(i) US$155.0 million to build theMilpillas copper project, at an interest rate pegged to the Libor with add-on rate of between 92.5 and 175 basis points during the life of the credit (payments begin in 2006 and end in 2014).
(ii) A new placement of US$377.0 million composed of:
---a) US$266.0 million at a rate of 6.55%, with principal payments beginning in 2014 and ending in 2018 2018;
---b) US$76.0 million at a rate of 8.39% through June 2009 and 6.55% in subsequent quarters, with principal payments from 2014 to 2018;
---c) US$35.0 million at a rate of 6.65%, with principal payments from 2015 through 2021.
(iii) US$116.9 million at a rate of 8.39% originally placed in 1997, with principal payments beginning in 2006 and ending in 2012.

In the first half of 2006, the cash flow from net results totaled Ps1,619.7, compared to Ps1,341.6 in the same period of the previous year. Among the main uses of cash were:
(i) A Ps1,965.2 increase in working capital, specifically (i) an increase in client accounts receivable due to higher prices on all metals (accounts receivable turnover dropped by 3 days compared to December 2005); and (ii) increased inventories, primarily because of the entry materials rich in precious metal content, and an increase in zinc concentrates.
(ii) Investment of Ps1,446.8 in property, plants and equipment, specifically the conclusion of the Milpillas project and the replacement of equipment and projects at Mex-Mex, Fresnillo and Penmont.
(iii) Payment ofa Ps860.9 dividend to shareholders ofIndustrias Peñoles and minority shareholders.

Construction of the Milpillas copper project in Sonora is now complete.In the second quarter, load testing was performed on equipment and processes, and the first commercial production is expected by late July 2006.This mine will turn out 55,000 metric tons of fine copper per year, on average, in the form of cathodes.Total direct investment in the project was US$217.8 million.

The results of this latest quarter were substantially higher than in the second quarter of 2005.Sales--excluding the results of metals and foreign-exchange hedges--totaledPs10,895.8, an increase of +116.9%,Gross income was Ps2,797.7, up +113.6%,EBITDA was Ps2,216.9, up +154.6%,operating income was Ps1,899.9, up +232.9% and net income was Ps963.2, an increase of +202.4%. These results can be attributed primarily to higher metal prices, higher volumes of metallic content produced in the mining business, and an increase in refined metals produced and sold by the metals business.

Comparing the results of the second quarter of 2006 against those of the first quarter of this year, sales--not including the results of metals and exchange-rate hedging--were up by +52.2%, gross income by +42.8%,EBITDA by +47.7% andoperating income by +56.7%. These results were influenced by a higher average exchange rate, higher metals quotations (except for lead), higher metal content of silver produced in the mining business, and increase in the amount of refined metal produced in the metals business, and a higher sales volume of refined metals.

For net income, the reduction of -15.4% was the result of an extraordinary revenue in the first quarter, from the sale of the Pinos Altos project, as well as increase in net foreign-exchange losses caused by the peso's devaluation against the dollar at the close of the period.

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Industrias Peñoles, S.A. de C.V. and its subsidiaries make up one of Mexico’s largest industrial conglomerates. Since its founding in 1887, this group has been engaged in the exploitation of non-renewable natural resources. Originally involved in prospecting, mining, foundry, refining and sale of non-ferrous metallic minerals, and subsequently expanding into the industrial chemicals industry, Peñoles is today the world’s largest producer of refined silver, metallic bismuth and sodium sulfate, and is one of the largest net exporters in Mexico’s private sector.Its shares have been listed on the Mexican Stock Exchange since 1968.

To learn more about the group and its activities, visit our website at: http://www.penoles.com.mx


For questions and further information, contact:
investor_relations@penoles.com.mx