2) it is turn 63 and you have only one city. You should have your tradition 3 or 4 cities by now before you can call the AI stupid.
Look at the map. A) I have (well, had) a huge amount of space. Given a rational AI, I didn't need to hurry. 2) There's a grand total of three different luxury types that I can reach (Copper, Sugar and the one Cotton I started with). My happiness couldn't take a quick 4 cities. 3) At that point I had just gotten the free Liberty settler, my capital had just finished the National College after getting Philosophy from the Great Library.
And regardless of how good or bad my skill in this game is (it's generally pretty bad, no argument there

), the AI is still plenty stupid.
See the attached screenshot for a later situation. Apparently, despite getting completely crushed by my catapults and swordsmen, Spain thinks it is really really important to make sure that a Trade Route will be possible under all circumstances, and thus settles Seville, not somewhat nearer to its capital, but right next to the Civ it is at war with.
She gave Seville to me in a peace deal some 5 turns later and I razed it to the ground.
While I think the Trade Route explanation is actually a pretty good one, it still needs to be balanced with other concerns, such as "can I ever defend this city", "is that location actually even remotely useful to me" and "am I skipping on a 20gpt turn tile to get a 7gpt trade route?". And it's Spain, for cryin out loud, they're one of the few civs that are actually not so gold starved early game.
Oh and btw, she never settled near Cerro de Potosi. I expanded steadily eastward and settled near it (on those sweet, sweet floodplains, to be precise. I love the Dutch.) Dumb, dumb AI.