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
30 June 2010
Issue No. 361

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 – Lumwana Phase 2: when, not if
MINI Trading Buy – Offtake and set for NSW
privatisation sale
Monthly Market Review - May 2010

Equities
Move Last % Move Range Volume
ASX 200 -38.8 4345.7 -0.9% -41 to +26 $4.2 bn(L)
SPI - yesterday -39.0 4338.0 -0.9% -54 to +29 24,091(L)
Dow Jones -268.2 9870.3 -2.6% -327 to -3 Low
S&P 500 -33.3 1041.2 -3.1% -39 to -3 Low
Nasdaq -85.5 2135.2 -3.8% -98 to -35 Low
FTSE -157.5 4914.2 -3.1% -173 to u.c Low

Commodities
Move Last % Today % Past Month
Oil-WTI spot -2.55 75.70 -3.3% +2.2%
Gold Spot +1.85 1240.80 +0.1% +2.2%
Nickel (LME) -71.26 862.29 -7.6% -10.7%
Aluminium (LME) -3.81 87.06 -4.2% -4.6%
Copper (LME) -17.12 293.14 -5.5% -6.5%
Zinc (LME) -6.26 77.55 -7.5% -10.2%
Silver -0.26 18.51 -1.4% +0.6%
Sugar +0.39 17.58 +2.3% +23.9%
 Equity Structured Products and Warrants

Dual Listed Companies (DLC’s)

Move %Move Last AUD Terms Diff to Aus
NWS (US) -0.54 -3.7% 14.11 16.63 -38.1 c
RIO (UK) -208.0 p -6.4% £30.48 54.15 -1427.2 c
BLT (BHP UK) -109.5 p -5.8% £17.720 31.48 -662.0 c

American Depository Receipts (ADR’s)

Move %Move Last AUD Terms Diff to Aus
BHP (US) -3.34 -5.0% 63.37 37.34 -75.8 c
AWC (US) -0.39 -7.0% 5.17 1.52 -4.7 c
ANZ (US) -1.24 -6.3% 18.31 21.58 -29.1 c
WBC (US) -4.99 -5.3% 88.50 20.86 -39.0 c
NAB (US) -1.00 -4.9% 19.40 22.86 -53.6 c
LGL (US) -1.60 -4.2% 36.44 4.29 -2.5 c
RMD (US) -1.11 -1.8% 60.53 7.13 -2.6 c
JHX (US) -1.86 -6.7% 26.00 6.13 -12.2 c
PDN (CAN) -0.21 -5.2% 3.82 4.26 -16.0 c

Overnight Commentary

United States Commentary

Concerns about global growth and the strength off the Euro banking system saw markets fall dramatically last night with
the S&P500 at its lowest since Oct 30 off 3.1%. The Dow sank 268pts and the Nasdaq fell 3.8%.

Eco - The CaseShiller Home Price Index was just ahead at 144.56 vs 144.30 whilst the 20 city composite is up 3.8% from
the same time last year vs an expected rise of 3.4% with the month on month reading +0.44% vs -0.1% expected. June
Consumer Confidence was lower than expected at 52.9 vs 62.5 down from 62.7 prior with concerns the labour market is
weakening.

Growth Proxies - Fears about a slowdown in China hit the growth names with Boeing sinking 6.3% and Caterpillar off
5.5% with those 2 taking 61pts off the Dow. Alcoa fell 6.3% and GE dropped 3.5%. 3M was 0.6% lower despite raising its
2Q sales outlook.

Financials - A potential liquidity shortfall in Europe as banks pay back emergency loans hurt the sector. On the Dow BoA
fell 4.4% with JP's off 3.8% whilst on the S&P100 Citi sank 6.8%, Regions Financial dropped 4.5% and Morgan Stanley
was off 4.4%.

United Kingdom & Europe Commentary

The FTSE shed 158 points Tuesday as global markets faced a storm of negative news buckling consumer confidence and
sparking a selloff across the world. There was not a single gainer on the FTSE 100 with miners and energy plays tracking
metal and crude prices lower and banks were hit as fears mounted around debt exposure. The market finished the day -
3.1%, the DAX -3.3% and the CAC -4%.

Banks - Banks were sold off as investor confidence fell against growing fears of their debt exposures. European banks as
a whole are set to repay 442B Euros to the ECB on Thursday sparking concerns of a liquidity shortfall in the vicinity of
100B Euros. Barclays and HSBC the worst in the sector off 6.3% and 3.7% respectively.

The ECB will offer 3 month loans to banks as they attempt to pay back the 442B Euro facility established 12 months ago.
The take up of these will be a good indicator of how much banks still rely on the ECB for funding. Eco wise UK mortgage
approvals were lower than expected at 49.8k vs. 51k and net consumer credit was 0.3B vs. 0.1B exp.

Commodities Commentary

Miners - Miners tracked metal prices lower on concerns Chinese demand is slowing. A weak US consumer confidence
number did little to help the sector with the majority of metals giving up 5-7%. Chinese PMI, out Thursday, will be watched
closely and will provide some clarity around the current strength of the global recovery. BHP, RIO and Xstrata off 5.8% to
6.4%.
 Equity Structured Products and Warrants

Energy - Energy plays were under pressure as crude slipped 3.3% and tropical storm Alex reached close to cyclone grade
in the Gulf of Mexico. BP fell 1.7% while RDSA and BG were off 3.4% and 2.4% respectively.

SPI Commentary
The SPI traded down 40pt to 4338. Open at 4378 with a high of 4406 and a low of 4323. Volume 27,076 Overnight the
SPI traded down 88pts to 4245.

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
US
Tuesday AUS
US
Wednesday AUS
US
Thursday AUS
US
Friday AUS
US
*Dates are indicative only and may change
 Equity Structured Products and Warrants

MINI Trading Buy:

Newcrest Mining (NCMKZG) – Flight to GOLD
Gold has rallied strongly this week to record levels again as the European Debt crisis and G20 austerity
measures have emerged. We believe that Gold is still a key component in a diversified portfolio right now and
like NCM as a mature and reliable producer.
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 RBS Research 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) – Lumwana Phase 2: when, not if
We believe the market will begin the price in the Phase 2 expansion at Lumwana that would take processing capacity to
c35Mtpa, from 20Mtpa currently. With production steadily improving, further growth on the horizon, strong cash flow and
attractive valuation metrics, RBS Research reiterate the high-conviction Buy call.

Buy Long MINI EQNKZA for short term trade to $5.04 or hold for the long term.

Source: IRESS

Expansion a question of when not if

We believe the market will begin to price in the Phase 2 expansion project as current operations move from ramp-up into
steady-state production. EQN's preliminary estimates indicate an expansion to about 35Mtpa would take three to four
years (from today) and cost US$300m-400m. RBS Research already include the optimisation of the processing plant from
20Mtpa to 24Mtpa at a cost of US$50m (additional mining fleet). Factoring in a 35Mtpa processing rate, achieved in late
2015 at a capex of US$400m, increases RBS Research’s NPV by A$0.23ps. We have also taken a more conservative
view on medium-term cash costs, partly offsetting the positive impact.

Near-term news flow likely to be positive for sentiment

The next quarterly report is likely to show record production and a significant drop in unit costs following the step change
in April/May operating performance. Further, increased material movements in 2H10 are likely due to: 1) improvements in
availability of the existing fleet through better performance of the Hitachi maintenance team; and 2) an additional five
trucks coming into service by September. This should allow stockpiles to be built up before the next wet season, allowing
ore processing to continue through heavy rainfall (and limiting the impact on copper output). We also believe there is a
high probability of ongoing exploration success as the drilling program continues (recent results have been encouraging).
Moving into next year, we see positive sentiment continuing as the Phase 2 expansion study should be completed in
1Q11, with a decision to go ahead likely thereafter.

High-conviction Buy recommendation

EQN offers near-term production growth with expansion potential, strong cash flow, no exposure to the RSPT, an FY11F
PE of just 6.5x and a c15% discount to NPV. With positive news flow likely to continue over the medium term and
confidence in the operations improving as production rises, we maintain our Buy call.

RBS MINIs over EQN

Security ExPrc Stop Loss CP ConvFac Delta Description
EQNKZA 2.1597 2.58 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 $14.70 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