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
14 July 2010
Issue No. 370

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 – A quarter of records
MINI Trading Buy – Offtake and set for NSW
privatisation sale
Monthly Market Review - May 2010

Equities
Move Last % Move Range Volume
ASX 200 -29.6 4380.3 -0.7% -30 to +19 $3.7 bn(L)
SPI - yesterday -27.0 4359.0 -0.6% -31 to +30 24,387(L)
Dow Jones +146.8 10363.0 +1.4% +1 to +192 Low
S&P 500 +16.6 1095.3 +1.5% +2 to +21 Low
Nasdaq +43.7 2242.0 +2.0% +15 to +50 Low
FTSE +104.0 5271.0 +2.0% -0 to +105 Very Low

Commodities
Move Last % Today % Past Month
Oil-WTI spot +2.17 77.12 +2.9% +4.6%
Gold Spot +15.90 1212.75 +1.3% -1.1%
Nickel (LME) +15.88 884.06 +1.8% +0.1%
Aluminium (LME) +1.11 89.60 +1.3% +3.2%
Copper (LME) +2.53 302.31 +0.8% +3.2%
Zinc (LME) +0.50 83.43 +0.6% +7.6%
Silver +0.29 18.25 +1.6% -0.0%
Sugar +0.07 17.17 +0.4% +8.5%
 Equity Structured Products and Warrants

Dual Listed Companies (DLC’s)

Move %Move Last AUD Terms Diff to Aus
NWS (US) +0.27 +1.9% 14.76 16.70 +18.3 c
RIO (UK) +32.5 p +1.0% £31.35 53.88 -1266.9 c
BLT (BHP UK) +31.0 p +1.7% £18.560 31.90 -572.1 c

American Depository Receipts (ADR’s)

Move %Move Last AUD Terms Diff to Aus
BHP (US) +0.94 +1.4% 67.22 38.03 +41.3 c
AWC (US) +0.15 +2.8% 5.51 1.56 +1.4 c
ANZ (US) +0.51 +2.6% 20.00 22.63 +38.2 c
WBC (US) +2.63 +2.7% 99.60 22.54 +28.2 c
NAB (US) +0.62 +2.9% 21.68 24.53 +13.3 c
LGL (US) +0.71 +1.9% 38.16 4.32 +1.8 c
RMD (US) +0.88 +1.3% 66.23 7.49 +7.5 c
JHX (US) +0.05 +0.2% 27.76 6.28 -0.7 c
PDN (CAN) -0.07 -1.6% 4.30 4.72 +5.1 c

Overnight Commentary

United States Commentary

US markets enjoyed a good day, up for the 6th straight, after the positive earnings from Alcoa and CSX the night before
lifted the mood. The Dow climbed 147pts, the S&P was up 1.5% and the Nasdaq jumped 2%.

Growth Proxies - Alcoa, up 1.2%, got markets off to a good start and the optimism saw Caterpillar be the best on the Dow
up 3.9%.GE rose 1.9%, United Tech climbed 1.6% and 3M was also up 1.6%.

Financial - The sector was the best on the day with the positive result from the Greek bond sale helping sentiment. JP and
BoA were 2nd and 4th best on the Dow up 3.3% and 3% respectively whilst on the S&P100 MS was 3rd best up 4.5% and
Goldmans added 2.2%.

Tech - Intel, up 2.1% and up 5% after market, reported after market with a big beat at 51cps vs 43cps expected. Apple, off
2.1%, was the worst on the S&P100 after the fallout from the antenna problems continues.

United Kingdom & Europe Commentary

The FTSE continues to trade on very low volume however she does keep tracking in the right direction. Britain's top index
added 104 points as banks lead the market to a 2 week high; 9.5% off its July 1 lows. The market finished the day +2%,
the DAX +1.9% and the CAC +2%.

Banks - Banks were in favour as the market positioned itself for a solid numbers out of the US. Continued talks that Euro
banks will pass the upcoming stress tests added to sentiment with RBS , Barclays and Lloyds adding 2.6% to 4.3%

In Germany, the ZEW survey showed economic sentiment had fallen coming in at 21.2 vs. 25.3 exp while French CPI was
in line. In the UK CPI was in line while the RICS house price balance was 9% vs. 20% expected.

Commodities Commentary

Miners - Miners enjoyed a healthy bounce as Alcoa gave investors some comfort. ENRC added 3.3% while BHP and RIO
added 1.7% and 1% respectively.

Energy - BP continued to rise as it stated that it had successfully fitted a containment cap that was ready for testing.
Continued talks of asset sales contributed to the stocks rally which added 2.9%. RDSA and BG adding 2.1% and 1.1%
respectively.
 Equity Structured Products and Warrants

SPI Commentary
The SPI traded down 27pt to 4359. Open at 4386 with a high of 4416 and a low of 4355. Volume 27,010. Overnight the
SPI traded up 63pts to 4428.

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
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) – A quarter of records
EQN had its best quarterly production result to date, with records for mine production, ore milled, recovery and
contained metal produced. RBS Research see further upside to mine performance as more trucks are added to
the fleet. However, in our view, this is now largely priced in.

Buy Long MINI EQNKZA for short term trade to $5.05 or hold for the long term.

Source: IRESS

A quarter of records
Second-quarter copper production of 43.8kt was higher than RBS Research forecast of 41.6kt, driven by higher-than-
expected mill throughput. Ore mined, ore milled, grade and recovery were all at record levels, realising much of
Lumwana's operational potential. Ore processed improved by 27% qoq to 4.57Mt from 3.59Mt, creeping up towards
nameplate capacity of 5.0Mtpq (20Mtpa). This was due to the higher volume of ore mined, which increased with improved
equipment availability and utilisation. Mining remains the bottleneck for the operation and the key area for further
improvement.

Production guidance maintained, but looks easily achievable

Production guidance was unchanged at 135kt for CY10. This should be easily achieved with 74.3kt produced in the 1H10,
and is likely to be increased. EQN needs 60.7kt in 2H10 to achieve guidance. The company would need to produce less
than the rain-affected 1Q result in 3Q and 4Q to fall short of guidance. This is highly unlikely, in our view, due to the
commissioning of five additional trucks, which should see a step change in material movements.

No update on costs
There was no update on cash costs, but unit costs should be down with higher production and reduced wet season
impact. RBS Research forecast cash costs for the full year of US$1.40/lb, 4% higher than guidance of US$1.35/lb, due to
the impact of the wet season on 1Q10 and ongoing use of a small mining fleet.

Investment view - move to Hold recommendation

We would considering taking profits on EQN after the recent rally. The stock has risen 32% from when we recommended
this trade on 20 May price of A$3.65 and is now within 6% of RBS Research target price of A$5.05ps. We continue to like
the company, but the good news now looks to be factored into the price.

RBS MINIs over EQN

Security ExPrc Stop Loss CP ConvFac Delta Description
EQNKZA 2.1732 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 $15.64 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 - June 2010

June 2010 was another tough month for equities with European sovereign debt issues, the leaking well in the
Gulf of Mexico and the local RSPT continuing to provide market headwinds. Throw in a change of prime minister
in Oz and the market has had plenty on its plate.

Australia's performance vs the world

In local currency, the All Ordinaries (-2.9%) outperformed the US S&P 500 (-5.4%) and the World MSCI ex Australia
Index (-3.6%) but underperformed the regional MSCI ex Japan Index (+1.3%).

The best- and worst-performing sectors

The best performers for the month were Telecommunication Services (+9.5%), Utilities (+0.7%) and Consumer Staples
(+0.5%). The worst performers were Industrials (-8.0%), Financials ex Property (-5.9%) and Consumer Discretionary (-
5.3%).

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 Avoca Resources (+33.0%), Gunns
(+27.1%), Perseus Mining (+21.4%), Cudeco (+20.5%) and Mineral Resources (+16.4%). The bottom-five performers
were iSoft Group (-70.4%), Elders (-61.6%), Downer EDI (-42.6%), Karoon Gas Australia (-22.8%) and Sigma
Pharmaceuticals (-21.5%).

Consensus earnings revisions

The top-five upgrades were Intoll Group (+23.9%), Fortescue Metals (+12.3%), Transurban Group (+10.4%), Iluka
Resources (+9.8%) and Newcrest Mining (+6.6%). The top-five downgrades were Alumina (-15.3%), Insurance Australia
Group (-6.5%), James Hardie Industries (-5.9%), Sims Metals (-4.9%) and Santos (-3.8%).
 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.
RBS Equities, its officers, directors, employees and agents accept no liability for any loss or damage arising out of the use of all or any part of the information contained in this
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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