Equity Structured Products and Warrants

This material has been produced by RBS sales and trading staff and should not be considered independent.

The Round Up
26 May 2010
Issue No. 338

The Round Up is a comprehensive

daily note produced by the RBS Global Market Action Scoreboard, commentary
Warrants team providing an overview Aussie Market Action SPI Comment, Events & Dividends
of market movements along with Newcrest (NCMKZG) MINI Trading Buy – Flight to GOLD
quality ideas for warrant traders and
Equinox (EQNKZA) MINI Trading Buy – Costs in focus
investors.
ANZ (ANZKZN) MINI Trading Buy – Still Restoring
Australian Strategy US Reporting Season

Equities
Move Last % Move Range Volume
ASX 200 -130.1 4265.3 -3.0% -130 to + $6.0 bn(A)
SPI - yesterday -142.0 4274.0 -3.2% -153 to -63.u.c 39,264(H)
Dow Jones -22.8 10043.8 -0.2% -292 to -5 Avg
S&P 500 +0.4 1074.0 +0.0% -33 to +1 Avg
Nasdaq -2.6 2211.0 -0.1% -73 to -2 Low
FTSE -128.9 4940.7 -2.5% -171 to u.c Low

Commodities
Move Last % Today % Past Month
Oil-WTI spot -0.80 69.41 -1.1% -18.5%
Gold Spot +8.75 1200.40 +0.7% +3.7%
Nickel (LME) -45.68 957.91 -4.6% -21.8%
Aluminium (LME) -2.98 90.12 -3.2% -13.7%
Copper (LME) -8.30 304.00 -2.7% -13.1%
Zinc (LME) -3.46 82.78 -4.0% -23.0%
Silver +0.02 17.93 +0.1% -2.2%
Sugar +0.06 15.25 +0.4% -2.6%
 Equity Structured Products and Warrants

Dual Listed Companies (DLC’s)

Move %Move Last AUD Terms Diff to Aus
NWS (US) -0.18 -1.2% 14.89 18.02 +24.6 c
RIO (UK) -103.5 p -3.5% £28.56 49.79 -1191.4 c
BLT (BHP UK) -50.0 p -2.8% £17.635 30.74 -553.9 c

American Depository Receipts (ADR’s)

Move %Move Last AUD Terms Diff to Aus
BHP (US) +0.12 +0.2% 61.62 37.28 +99.8 c
AWC (US) -0.08 -1.5% 5.16 1.56 +2.6 c
TLS (US) -0.25 -2.0% 11.95 2.89 +0.2 c
ANZ (US) -0.13 -0.7% 17.64 21.34 +0.3 c
WBC (US) -1.90 -2.0% 92.30 22.34 +7.5 c
NAB (US) -0.46 -2.3% 19.55 23.65 -10.6 c
LGL (US) -0.35 -1.1% 32.40 3.92 +6.0 c
RMD (US) -0.09 -0.1% 62.01 7.50 +15.3 c
JHX (US) -0.92 -3.0% 29.97 7.25 +9.2 c
PDN (CAN) -0.04 -1.2% 3.27 3.71 +7.8 c

Overnight Commentary

United States Commentary

US markets were weaker but staged an afternoon rally to bounce 3% off lows with the S&P500 just closing in the black
with the major indices importantly closing above February lows. The Dow was off 23pts, the S&P was flat and the Nasdaq
fell 0.1%.

Eco - Consumer Confidence was 63.3, its highest level in two years, vs 58.5 expected up from a revised 57.7 previously.
Richmond Fed Manufacturing was inline at 26 and the House Price Index was +0.3% vs flat expected and up from -0.4%
prior. The Case Schiller year on year gain was slightly lower than expected but month on month the 20 city was better
than expected.

Financials - House Rep Barney Frank said a proposal to limit deriv trading by the banks went too far. Goldmans jumped
4.3%, Regions Financial was up 3.5%, MS added 1.4% and on the big board JP's rose 0.8% with BoA up 0.6%.

Materials - Commodity prices bounced late helping some in the sector to good gains. Freeport and Newmont were up
3.1% and 2.3%, Alcoa climbed 1.9% but Caterpillar was flat. AK Steel, up 11.4%, was the best on the S&P500 after being
upgraded with US Steel up 3.7% and Nucor adding 1.5%.

United Kingdom & Europe Commentary

The FTSE shed 129 points Tuesday as lingering European debt fears and conflict talks out of North Korea caused
investors to abandon risky assets. Banks and miners continue to bear the brunt of the selloff again underperforming the
broader market. The market finished the day -2.5%, the DAX -2.3% and the CAC -2.9%.

Banks - Banks were sold off as concerns surrounding Europe's debt situation remain a threat to the global economic
recovery. Barclays, Lloyds, HSBC and Standard Chartered off 4.3% to 8%.

In the UK GDP was in line at 0.3%, private consumption was slightly better than expected at 0% vs. -0.2% exp. And
imports were higher at 1.4% vs. 0.4% exp. Across the Eurozone industrial new orders were 5.2% vs. 2.5% exp. (mom)
and 19.8% vs 15% (yoy).

Commodities Commentary

Miners - Miners were weaker as metal prices were sold off on the back of demand concerns. ENRC, Antofagasta,
Vedanta, RIO, BHP and Xstrata off 2.8% to 7.1%.

Energy - Oil majors tracked the crude price lower and continue to be sold off on sentiment surrounding BP's oil spill in the
Gulf of Mexico. BP, BG and Royal Dutch off 1.2% to 2%.
 Equity Structured Products and Warrants

SPI Commentary
The SPI traded down 151pt to 4274. Open at 4425 with a high of 4437 and a low of 4263. Volume 44,775 Overnight the
SPI traded up 76pts 4339.

SPI Intraday SPI Daily

*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS

Upcoming Economic Events for the Week

Monday AUS Aus new motor-vehicle sales
US US existing home sales
Tuesday AUS
US
Wednesday AUS Aus real construction work done
US US consumer confidence, US durable goods orders
Thursday AUS Aus real capital expenditure
US US new home sales, US GDP (revised)
Friday AUS
US US personal consumption, US core PCE deflator, US Chicago PMI
*Dates are indicative only and may change
 Equity Structured Products and Warrants

MINI Trading Buy:

Newcrest Mining (NCMKZG) – Flight to GOLD
NCM has secured LGL board approval for its merger proposal via an increase in bid terms. On RBS Research’s
numbers the increased terms remain EPS accretive but are dilutive on an NPV basis. We see increased sector
relevance and strong growth profile as supporting the combined entity going forward. RBS Research Target
Price to A$40.52.

Source: IRESS

Increased NCM offer accepted

The LGL board has recommended an increased offer of 1 NCM share and A$0.225 for every 8.43 LGL shares held, an
increase of 6.3% above the previous offer. This is in line with RBS Research’s previously stated position that a 5-10%
improvement in bid terms of the bid would secure the support of the LGL board. However, the release of the Henry tax
review implies a proportionately greater impact for NCM than LGL on an NPV basis and ultimately erodes the value of an
increased script component, in our view. In light of the new tax proposals we believe NCM has achieved a sound
outcome.

NPV dilutive but its about the bigger picture

Under the increased bid terms and including A$85m in synergies we estimate that the deal would be 1.4% EPS accretive
in year one (from 2% previously) and 8.9% NPV dilutive for NCM. However, the combined entity would be trading at a
P/NPV multiple of 1.17. This compares with our historical average P/NPV multiples of 1.45 for LGL and 1.39 for NCM. On
this basis alone we believe that the combined entity will re-rate, but flag increased index weighting, sector significance
and expanding production profile as justification for an increase P/NPV premium over time.

Investment view
Prior to the initial bid, our preference was for NCM over LGL for gold exposure due to diversification by mine and
geography, its strong growth pipeline, management strength and a relatively low P/NPV multiple. Should the merger be
successful we are of the view that NCM's management team will be able to extract greater operational synergies over
time than the A$85m currently factored in to our numbers, and remain buyers on a long term view. We maintain our view
that a competing bid for LGL is unlikely but would continue to hold that stock with a view to NCM exposure now that a
timeline for the merger has been established.

RBS MINIs over NWS

Security ExPrc Stop Loss CP ConvFac Delta Description

NCMKZG 24.9127 27.38 Long 1 1 MINI Long
 Equity Structured Products and Warrants

MINI Trading Buy:

Equinox (EQNKZA) – Costs in focus
1Q10 cash costs of US$1.60/lb were slightly higher than we expected, and leave EQN stretched to meet full year
guidance of US$1.35/lb. However, with production improving, positive exploration results, and the stock continuing to
trade at a significant discount to NPV, we maintain our Buy call.
Buy Long MINI EQNKZA for short term trade to $4.82 or hold for the long term.

Source: IRESS

Costs in line, earnings up

EQN reported 1Q10 NPAT of US$32.5m which included pre-tax derivative losses of US$16m (mark to market of the
hedge book). Stripping out these non cash derivative losses, underlying NPAT was US$44m, which was above our
forecast of US$35.2m. We had factored in higher interest costs associated with debt restructuring during the quarter.

But cost guidance likely to rise

Operating costs of US$1.60/lb for 1Q10 was broadly in line with our forecast of US$1.57/lb. The company maintained full
year cost guidance of US$1.35/lb but noted that a significant improvement needs to take place to achieve this.
Management advised that absolute dollar million costs need to come down to meet guidance, which we believe may be
difficult with additional equipment coming on stream (five new trucks by mid-year). Contractor costs were high in 1Q10
which provides some opportunity to strip costs out, however with the wet season starting again in 4Q10, we remain
conservative and have increased our projected costs for 2010 to US$1.40/lb.

Positive investment view maintained

EQN remains one of our key picks in the sector. While costs are likely to be higher than guidance, production
improvements throughout the year should see a significant reduction in unit costs from current levels. With the issues
surrounding the Australian government's revisions to mining tax, EQN remains sheltered from these issues. Further, EQN
is likely to release feasibility study results for an expansion of Lumwana by year end, which we also see as a positive
catalyst. The stock is trading at a P/NPV of 0.83x and continues to look cheap to us. We maintain our Buy call.

RBS MINIs over EQN

Security ExPrc Stop Loss CP ConvFac Delta Description
EQNKZA 2.1356 2.56 Long 1 1 MINI Long
 Equity Structured Products and Warrants

MINI Trading Buy:

ANZ Banking Group (ANZKZN) – Still Restoring
ANZ's 1H10 result was 3% above our cash EPS estimate, although the dividend was 4% below our forecast. In
our view, ANZ's revenue was held back by wider sector trends, but its interest margin should outstrip peers in
FY10. We lift our FY10 cash EPS forecast 3.9% and maintain our Buy recommendation.

Source: IRESS

1H10 cash EPS was 4% above Bloomberg consensus

ANZ’s 1H10 results (underlying EPS $0.913, cash EPS $0.944) beat consensus by 4%, although the $0.52/share
dividend fell short of RBS Research’s $0.54/share forecast. Adjusted for FX movements and assuming full ownership of
ING, ANZ’s 1H10 underlying revenue rose 3.2% on 2H09 and profit before bad debts and tax grew just 3.6% on 2H09.
ANZ’s top line held back by sector trends
We see wider sector influences held back top-line growth. In FY10, all major banks face flat loan balances, softer trading
income, weakness in wealth management and lower retail banking fees. With this industry backdrop, higher net interest
margins are all that’s left to boost revenues. ANZ lifted its group net interest margin by a healthy 6bp, despite a big drag
from trading activities. The main company-specific drag for ANZ was cost growth.
But most of these drags should lift by 1H11
Even so, some of these clouds may start to clear in 2H10. ANZ highlighted a pick-up in corporate loan applications,
although it concedes that drawdowns have yet to budge. Corporate loan repricing and higher free funds earnings should
lift 2H10 margins again. Operating cost growth looks to have peaked, and momentum should return in the Asian unit.
We upgrade cash EPS 3.9% for FY10F
RBS Research has lift their forecasts to account for better margins, recent acquisitions, the New Zealand recovery, and a
lower payout ratio. Cash EPS forecast rises 3.9% for FY10, 6.1% for FY11 and 5% for FY12. RBS Research’s FY10F
dividend falls to $1.14 /share.
Retaining Buy, raising price target to $27.26/share (from $26.28/share)
We see less pressure on ANZ’s earnings by 2H10 and 1H11. ANZ has about $3bn in excess capital relative to the peer
average and trades on a 4% discount to peers (IBES 12m fwd). RBS Research price target is $27.26/share (DDM of
$26.26/share and $1.00/share for extra capital).
ANZ last traded $21.34, BUY ANZKZN for 1-for-1 upside towards RBS Target Price of $27.26

RBS MINIs over ANZ

Security ExPrc Stop Loss CP ConvFac Delta Description
ANZKZL 1384.42 1506 Call 1 1 MINI Long
ANZKZM 1266.98 1383 Call 1 1 MINI Long
ANZKZN 1687.26 1823 Call 1 1 MINI Long
 Equity Structured Products and Warrants

RBS Round Up Corner:

US Reporting Season Summary

We enter the 1Q10 US reporting season with both the US and Aussie equity markets looking
fairly valued, and earnings revision cycles in both countries flat. Therefore, we see US
reporting as a significant sign post for both markets. We identify the key sectors and stocks
to watch from Oz.

Looking for top-line sales growth in the US for 1Q10

A key barometer for this US reporting season will be the extent to which companies deliver both top-line sales as well as
earnings surprise. Of the last four US reporting seasons, only 4Q09 delivered both sales and earnings surprises. This
outcome was generally seen as evidence of the US recovery accelerating and not just corporate cost-cutting.

Revenue growth of 12% pcp (just 8% delivered last quarter)

For 1Q10, Bloomberg is looking for revenue growth of 12% on 1Q09, which compares with 8% actual for December 2009.
On a sector basis, the key contributors are likely to be Energy, which accounts for 36% of the expected aggregated
revenue growth, and Financials at 15%.

Which US stock results should we focus on in Oz?

During the peak of US reporting, we are generally inundated with results on a daily basis, some of which have more
relevance than others for the Australian market. To help prioritise the US results, we have surveyed the RBS research
analysts and asked them to identify which are the key US stocks to watch in their sectors. These are presented in the
table below, along with their expected reporting date and key forecast expectations.
Equity Structured Products and Warrants
 Equity Structured Products and Warrants

For further information please do not hesitate to contact us on the details below

Equities Structured Products & Warrants

Toll free 1800 450 005 www.rbs.com.au/warrants
Trading Products Team
Ben Smoker 02 8259 2085 ben.smoker@rbs.com
Ryan Corrigan 02 8259 2425 ryan.corrigan@rbs.com
Investment Products Team
Elizabeth Tian 02 8259 2017 elizabeth.tian@rbs.com
Tania Smyth 02 8259 2023 tania.smyth@rbs.com
Robert Deutsch 02 8259 2065 robert.deutsch@rbs.com
Mark Tisdell 02 8259 6951 mark.tisdell@rbs.com

Disclaimer
The information contained in this report has been prepared by RBS Equities (Australia) Limited (“RBS Equities”) (ABN 84 002 768 701) (AFS Licence No 240530) and has
been taken from sources believed to be reliable. RBS Equities does not make representations that the information is accurate or complete and it should not be relied on as
such. Any opinions, forecasts and estimates contained in this report are the views of RBS Equities at the date of issue and are subject to change without notice. RBS
Equities and its affiliated companies may make markets in the securities discussed. RBS Equities, its affiliated companies and their employees from time to time may hold
shares, options, rights and warrants on any issue contained in this report and may, as principal or agent, sell such securities. RBS Equities may have acted as manager or
 Equity Structured Products and Warrants
co-manager of a public offering of any such securities in the past three years. RBS Equities’ affiliates may provide, or have provided banking services or corporate finance to
the companies referred to in this report. The knowledge of affiliates concerning such services may not be reflected in this report. This report does not constitute an offer or
invitation to purchase any securities and should not be relied upon in connection with any contract or commitment. RBS Equities, in preparing this report, has not taken into
account an individual client’s investment objectives, financial situation or particular needs. Before a client makes an investment decision, a client should consider whether any
advice contained in this report is appropriate in light of their particular investment needs, objectives and financial circumstances. It is unreasonable to rely on any
recommendation without first having consulted with your advisor for a personal securities recommendation. The information contained in this report is general advice only.
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© Copyright 2009. RBS Equities. A Participant of the ASX Group.

Explanation of Warrant Tables

Security – refers to the code ascribed to the warrant, ExDate – refers to the date on which the warrant expires or is reset, ExPrc – refers to the exercise price, or second
instalment payment, CP – tells you whether the warrant is a call or a put, ConvFac – the conversion factor of the warrant which tells you how many warrants you need to
exercise in order to take possession of 1 share, Delta – tells you how much the warrant will move for a 1c move in the underlying security, Description – Tells you the type
of warrant.
All charts taken from IRESS unless indicated otherwise