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
3 June 2010
Issue No. 343

The Round Up is a comprehensive

daily note produced by the RBS Global Market Action
Warrants team providing an overview Aussie Market Action
of market movements along with Newcrest (NCMKZG)
quality ideas for warrant traders and
Equinox (EQNKZA)
investors.
Origin Energy (ORGKZC)
Australian Strategy
Scoreboard, commentary
SPI Comment, Events & Dividends
MINI Trading Buy – Flight to GOLD
MINI Trading Buy – Costs in focus
MINI Trading Buy – Offtake and set for NSW
privatisation sale
Monthly Market Review - May 2010

Equities
Move Last % Move Range Volume
ASX 200 -32.1 4381.0 -0.7% -39 to +16 $5.3 bn(A)
SPI - yesterday -23.0 4387.0 -0.5% -39 to +22 38,310(H)
Dow Jones +225.5 10249.5 +2.2% +2 to +230 Avg
S&P 500 +27.7 1098.4 +2.6% +1 to +28 Avg
Nasdaq +58.7 2281.1 +2.6% -1 to +59 Avg
FTSE -12.0 5151.3 -0.2% -91 to u.c Avg

Commodities
Move Last % Today % Past Month
Oil-WTI spot +0.82 73.40 +1.1% -14.8%
Gold Spot -1.95 1223.70 -0.2% +3.8%
Nickel (LME) -38.56 887.87 -4.2% -25.4%
Aluminium (LME) -0.33 88.52 -0.4% -12.3%
Copper (LME) -3.67 301.10 -1.2% -10.3%
Zinc (LME) -2.27 80.28 -2.7% -21.5%
Silver -0.08 18.36 -0.4% -1.5%
Sugar -0.46 13.94 -3.2% -7.4%
 Equity Structured Products and Warrants

Dual Listed Companies (DLC’s)

Move %Move Last AUD Terms Diff to Aus
NWS (US) +0.49 +3.3% 15.43 18.33 +56.2 c
RIO (UK) -14.0 p -0.4% £31.38 54.63 -1213.4 c
BLT (BHP UK) -18.5 p -1.0% £18.560 32.31 -552.1 c

American Depository Receipts (ADR’s)

Move %Move Last AUD Terms Diff to Aus
BHP (US) +2.26 +3.6% 64.90 38.55 +72.3 c
AWC (US) +0.22 +4.0% 5.66 1.68 +5.1 c
TLS (US) +0.53 +4.4% 12.71 3.02 -2.0 c
ANZ (US) +0.50 +2.7% 18.85 22.40 +30.5 c
WBC (US) +2.08 +2.2% 96.30 22.88 +47.2 c
NAB (US) +0.60 +3.0% 20.60 24.47 +29.4 c
LGL (US) -0.11 -0.3% 33.00 3.92 -2.9 c
RMD (US) +1.68 +2.7% 64.98 7.72 +7.0 c
JHX (US) +0.92 +3.0% 31.11 7.39 +7.2 c
PDN (CAN) +0.07 +2.1% 3.44 3.93 +8.4 c

Overnight Commentary

United States Commentary

Markets enjoyed a nice bounce overnight as investors came for oversold stocks from the previous session and continued
positive economic data was released. The Dow jumped 226pts, the S&P was 2.6% higher and the Nasdaq also added
2.6%.

Eco - Pending Home Sales MoM were 6% vs 5% as buyers rushed to get in for the April 30 tax credit deadline, YoY they
were 24.6% vs 20.2% expected. Domestic Vehicle Sales were also above expectation, 9.14m vs 8.9m, and Total Vehicles
Sales were 11.64m vs 11.4m.

Energy - Halliburton jumped 12% and was the best on the S&P100 after the company said it had plenty of other projects if
Gulf drilling is banned. Baker Hughes rose 10.5%, Schlumberger added 8.8% and National Oilwell 4.3%.

Homebuilders - The sector had a good day following the Pending Home Sales data. DR Horton rose 3%, Toll Brothers
was also up 3%, Lennar added 1.3%, Pulte climbed 2.7% and Beazer ended 1% higher.

Auto - Carmakers enjoyed a solid day following the release of the sales figures. Ford rose 3.9% and said that they would
kill off the underperforming Mercury brand to concentrate on Lincoln.

United Kingdom & Europe Commentary

The FTSE lost 12 points Wednesday as miners tracked metal prices lower on speculation of slowing Chinese demand
and lingering debt concerns continued to weigh on banks. The market finished the day -0.2% while the DAX and the CAC
were both unchanged.

Banks - Banks were under continued pressure as ongoing Eurozone debt fears continue to overshadow any catalyst for
investors to return to the sector. Barclays, RBS and Lloyds off 2.2% to 3.6%.

Insurance - Prudential shed 2.5% after abandoning it's plans to buy AIG's Asian life unit for $35.5B. The poorly handled
transaction has left management under fire and the company staring down the barrel of a $659m fail fee.

Commodities Commentary

Miners - Miners were weaker today as metal prices fell against a backdrop of Chinese growth concerns. BHP and RIO fell
1% and 0.4% respectively while Lonmin, Xstrata and Anglo were off as much as 2.1%.
 Equity Structured Products and Warrants

Energy - Energy plays remain out of favour with BP falling another 0.1% as a lack of news surrounding the oil spill
continues to sour sentiment. BG fell 2.3% while Royal Dutch added 0.3%.

SPI Commentary
The SPI traded down 23pt to 4387. Open at 4410 with a high of 4432 and a low of 4350. Volume 46,060 Overnight the
SPI traded up 81pts to 4468.

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 HIA new home sales, Aus real net exports, Aus current account balance, Aus real
business inventories
US
Tuesday AUS Aus RBA cash rate decision, Aus nominal retail trade, Aus building approvals
US
Wednesday AUS Aus real GDP
US US construction spending
Thursday AUS Aus trade balance
US US pending home sales, US domestic vehicle sales, US ADP employment
Friday AUS
US US non-farm payrolls, US unemployment rate
*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:

Origin Energy (ORGKZC) – Offtake and set for NSW privatisation sale
ORG's share price has come under pressure of late. In addition to general market jitters, we believe
concerns over the outlook for APLNG and the potential for an earnings downgrade have also weighed
on sentiment. In our view, the longer-term outlook hasn't changed, and we are buyers on this
weakness. Buy maintained with RBS Target Price of $18.25

Source: IRESS

Earnings should hold up in FY10...

A few things have gone against ORG since the interim result in February (eg, Contact, Cooper flooding, lower oil price,
weaker APLNG gas sales), but we still expect the company to meet its c15% NPAT guidance (RBS +15.3% vs market
+16.6%). The key positive driver over the last half has been particularly weak electricity spot prices, which should help the
retail business deliver a solid FY10 result.

... and the outlook for FY11 looks pretty robust

As shown in this note, next year seems to be loaded with a range of positive earnings drivers, so we find it hard to see
ORG being unable to deliver solid profit growth. In our view, the biggest risk revolves around how the Darling Downs
power station will interact with ORG's retail business. In isolation, the near-term outlook for the generator would be pretty
ugly, but we are hoping that any downside is offset by improved retail margins.

RSPT shouldn't have a significant impact on long-term fundamentals

We still don't expect the current proposal to get up with no changes (eg, the uplift rate) but, even if it does, we don't see it
making a material dent in our ORG valuation. RBS Research base-case valuation for APLNG would fall only 10% under
the RSPT, using RBS Research conservative forecasts for capex and an LNG sales price. At any rate, we believe the
market is underestimating ORG's fall-back plans if the LNG project is delayed materially (we have pushed back the
timeline by 12 months to mid 2015) or even shelved.

Buy maintained; we think current weakness provides a good opportunity

It may be difficult to pinpoint a precise catalyst for Origin's share price to re-rate but, in our view, there is no question the
stock is loaded up with positive optionality that can be exercised at any time. The NSW trade sale (fingers crossed) looks
promising and we believe ORG is well positioned to make an accretive acquisition.
ORG last traded $14.96, BUY ORGKZC for 1-for-1 upside towards RBS Target Price of $18.25

RBS MINIs over ORG

Security ExPrc Stop Loss CP ConvFac Delta Description
ORGKZC 1095.88 1198 Call 1 1 MINI Long
 Equity Structured Products and Warrants

RBS Round Up Corner:

Monthly Market Review - May 2010

May 2010 was tough, with European sovereign debt issues, escalating tensions on the Korean
peninsula, a leaking well in the Gulf of Mexico and the homegrown RSPT providing market headwinds.
We don't expect a default in Europe and much has been priced in for the RSPT, hence we believe value
is emerging.

Australia's performance vs the world

In local currency, the All Ordinaries (-7.9%) outperformed the US S&P 500 (-8.2%), the regional MSCI ex Japan Index (-
11.2%) and the World MSCI ex Australia Index (-9.6%).

The best- and worst-performing sectors

All sectors recorded negative performance during the month. Relatively good performers for the month were Consumer
Staples (-1.1%), Health Care (-4.1%) and Property (-4.2%). The worst performers were Financials ex Property (-11.5%),
Industrials (-11.3%) and Information Technology (-8.0%).

The top-five and bottom-five performing S&P/ASX 200 stocks

The top-five performers from the S&P/ASX 200 (price) Index for the month were Healthscope (+25.6%), Eldorado Gold
(+22.2%), Sigma Pharmaceuticals (+18.9%), Australian Agricultural Company (+14.7%) and St. Barbara (+10.9%). The
bottom-five performers were Ausenco (-55.7%), Virgin Blue (-44.5%), Linc Energy (-26.2%), Sonic Healthcare (-25.9%)
and Kagara (-23.8%).

Consensus earnings revisions

The top-five upgrades were Intoll Group (+15.6%), Boart Longyear (+14.6%), Spark Infrastructure (+9.4%), Duet Group
(+4.8%) and Orica (+2.2%). The top-five downgrades were Iluka Resources (-10.8%), Sonic Healthcare (-10.7%), Primary
Health Care (-8.3%), Transurban (-8.2%) and Brambles (-5.8%).
 Equity Structured Products and Warrants

RBS view: no sovereign default in Europe

Our view is that there will be no default in Europe but that resolution of the crisis may still be some time off. We show
below that while debt markets have deteriorated this is certainly no GFC event. With the Australian market trading on a
12.2x forward market PE, some good buying opportunities are emerging on any sort of medium-term view.

Debt markets – modest reaction so far, but no GFC

The TED spread, or the spread between Libor and T-Bills, is a good indicator of bank funding stress, while RBA
exchange account balances signal the degree to which the banking system in Australia is relying on the RBA for liquidity
support. As shown in the charts that follow, the TED spread has increased marginally, although it remains well below the
elevated levels seen following the failure of Lehman in September 2008. RBA exchange account balances, or cash in the
system, are consistently around A$15bn, indicating the absence of any significant local stress.

CDS markets: Australia flat, US weaker

Credit default swap (CDS) spreads are a useful barometer of the health of the corporate credit
market. As shown below, corporate CDS spreads have widened in most jurisdictions but remain
well below their GFC peaks.
 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
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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The warrants contained in this report are issued by RBS Group (Australia) Pty Limited (“RBS”) (ABN 78 000 862 797, AFS Licence No. 247013). The Product Disclosure
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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