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
9 September 2010
Issue No. 405

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 RIO Tinto (RIOKZG) MINI Trading Buy – Iron Clad Results
quality ideas for warrant traders and
Santos (STOKZD) MINI Trading Buy – Shell... are you still there?
investors.
Origin Energy (ORGKZC) MINI Trading Buy – Cashflow set to surge
Australian Strategy Monthly Market Review - August 2010
Daily Monitor
 Equity Structured Products and Warrants

Overnight Commentary

United States Commentary

The US closed higher by day end but a lack of volume continues to suggest investors aren't convinced the market can
move substantially higher. The S&P remains range bound between 1,040 and 1,130 and with Rosh Hashanah running
Thursday and Friday it would be tough to see the market do anything substantial this week.

ECO - The Beige Book confirmed the economy had begun to slow but was for the most part overlooked. Consumer
credit came in at -3.6b vs. -4.7b and we will get a look at Initial Jobless Claims, Continuing Claims and the Trade Balance
tonight.

Movers - BP added 3.2% after the oil giant released a report deflecting the majority of the blame onto drilling contractor
Transocean, which surprisingly finished the day 1.3% higher. Growth proxies, which track the movements of the broader
market, were stronger with Boeing, GE and CAT adding 1.5% to 1.7%. JPMorgan pared yesterdays losses adding 2.2%
while on the downside Intel and HP gave up 1.2% and 2.8% respectively.

United Kingdom and Europe Commentary

London - The FTSE added 0.4% as miners and energy plays offset declines in financials however volumes remain low.
ARM Holdings added 5.9% as it was rumoured Samsung would use their technology in a new product while RIO added
0.7% as it was revealed a sales team had arrived in Russia to discuss details around acquiring a ~15% stake in Potash
producer Uralkali. House prices unexpectedly rose to 0.2% vs. -0.5% expected while IP was lower at 0.3% vs. 0.4% and
Manufacturing Production was in line at 0.3%.
 Equity Structured Products and Warrants

Commodities Commentary
Last % Move
GOLD 1255 -0.4%
OIL 74.89 1.1%
NI 22904 3.2%
AL 2162 -0.3%
ZN 2219 1.4%
CU 7675 0.6%
CRB 0.2%

SPI Commentary
The SPI traded down 36 pts to 4538. Open at 4574 with a high of 4575 and a low of 4527. Volume 28,559. Overnight the SPI traded up
25pts to 4568.

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 RBS Interest Rate Decision, Home Loans (MoM)
US
Wednesday AUS Unemployment Rate
US US Beige Book
Thursday AUS
US Trade Balance , Initial Jobless Claims
Friday AUS
US
*Dates are indicative only and may change
 Equity Structured Products and Warrants

MINI Trading Buy:

RIO Tinto (RIOKZG) – Iron Clad Result
RBS MINIs over RIO

Stock: Rio Tinto

Ticker: RIO
Share price: A$73.01
Target price: A$83.20
NPV: A$83.20
Rec. Buy

Summary

RIO reported underlying earnings of US$5.8bn, ahead of consensus at US$5.5bn and well above our forecast US$5.2bn.
The difference related to iron ore where RIO achieved better prices than we had expected (we took a conservative view
on price realisations in light of the move from benchmark to quarterly contracts). A dividend of US$0.45ps was declared,
inline with our forecast. Net debt at the end of the period stands at US$12bn (US$19bn YE2010), with gearing at 19%.
Overall a strong result in our view.

Underlying NPAT by division

Divisional NPAT (US$m) 1H10E Consensus Actual Diff vs RBS Diff vs RBS
Iron Ore 3,420 3676 4108 688 20%
Aluminium 387 348 358 -29 -7%
Copper 1,185 1153 1062 -123 -10%
Energy 620 793 642 22 4%
Diamond and Minerals 83 81 121 38 45%
Other Operations 4 -61 -2 -6 -148%
Underlying NPAT (US$m) 5,188 5,515 5,767 579 11%

Iron ore remains the key swing factor for RIO, with 2/3rds of earnings coming from the division. 3Q10 iron ore prices will
be the average of the March to May spot price, implying US$147/t FOB (above the spot price of US$134/t). This
represents another gain qoq, which will see positive earnings momentum continue.

Corporate items

RIO is about to enter a growth phase which is positive for production growth, however a significant amount of capex
needs to be spent.

+ Net debt reduced to US$12bn from US$39bn at 30 June 2009

+ Full year 2010 capex to approach US$6bn (RBS US$5.7bn)
+ Full year 2011 capex to be approx US$9bn (RBS US$5.9bn)
+ Impairment charge of US$403m, related to Alcan Engineered Products

Security ExPrc Stop Loss CP ConvFac Delta Description

RIOKZG 51.2382 56.31 Long 1 1 MINI Long
 Equity Structured Products and Warrants

MINI Trading Buy:

Santos (STO.AX): Shell... are you still there?
Santos has delivered a strong interim operating result, but the market's focus was on the GLNG update. Delays
have been disappointing, but management is still targeting the signing of LNG off-take agreements in the near-
term that would underpin a value enhancing two train development. Buy maintained.

Source: IRESS
NPAT of A$198m was at top end of guidance (A$180m-200m) and beat our A$191m
We weren't expecting the A$25m (post tax) write-down of Jabiru/Challis and Legendre, so arguably the underlying NPAT
of A$210m was even further ahead of expectations. The variance to our forecast was split evenly across lower costs,
D&A and income tax. No change to production guidance (49-52 mmboe vs RBS at 49.9). The interim dividend of 22cps
was in line. We have updated our forecasts to reflect recent guidance (see Table 1).

GLNG ownership to be sold down to at least 45% by FID

According to management, FID on the first train is still being targeted by end of 2010 with the second to follow within the
subsequent 12 months. In addition to selling down at least 15%, management expects to sign an off-take agreement in
the near term that will underpin the bulk of two trains. On our forecasts, STO would need A$1.5bn-2.0bn of fresh equity to
underpin a two-train development, assuming the price received is in line with the Petronas deal.

Will buyers really sign up for a second train's off-take without reserves?
We must admit we would be surprised to see the likes of a Kogas sign a binding contract for significant volumes of LNG
not backed by at least 2P reserves. For this reason, we are still hoping that Shell, or another large E&P major, is in the
mix to become a partner with Santos and Petronas. In our view, this would be very well received by the market.

Buy maintained, there is value to be unlocked

The AFR press leak from six weeks ago and management's comments that it believes it can secure off-take for two trains
this year have definitely built up investor expectations. Therefore, we believe only a very attractive deal will be sufficient to
appease the market. Should management fail to deliver this in the next couple of months, event-driven money could rush
for the exit door and put some pressure on the share price.

RBS MINIs over STO

Security ExPrc Stop Loss CP ConvFac Delta Description

STOKZD 928.95 10.22 Long 1 1 MINI Long
 Equity Structured Products and Warrants

MINI Trading Buy:

Origin Energy (ORGKZC) – Cashflow set to surge
ORG's FY10 earnings fell a little short of our forecasts, but, importantly, FY11 is on track to be a big
year on the earnings front. With cashflows set to surge over the coming years, on our estimates, we
think the market is underestimating ORG's financial flexibility and optionality. Buy maintained.
Buy maintained with RBS Target Price of $18.25

Source: IRESS

Underlying NPAT of A$585m was behind our A$611m forecast

EBITDA of A$1,304m (incl associates) was the main variance to RBS Research numbers (A$1,321m forecast) but D&A
(variance of A$9m) and minorities (variance of A$9m) also impacted. Operationally, the generation and E&P contributions
were lower than we expected with retail offsetting. Management has suggested it would have hit its 15% growth target if
not for the overseas exploration write-downs, although RBS Research had these in the numbers already. OPCF of
A$789m was a little below RBS Research’s expectations (A$840m), but the 25c dividend was in line.

ORG has guided for 15% NPAT growth in FY11

FY11 guidance has been set at +35% EBITDAF growth and +15% NPAT growth in FY11. Importantly, the guidance now
includes a reasonably aggressive A$170m exploration programme and RBS Research have pushed up forecasts for
exploration write-offs to about A$65m (from A$40m). This has been the sole driver of RBS Research’s earnings
downgrade. Importantly, the valuation impact is negligible.

APLNG - is consolidation lurking?

Today ORG appeared the most open to collaborating with another project proponent since the Conoco deal was struck
almost two years ago and we continue to believe that any news on that front would be well received by the market. Like
all investors, we would like to see an off-take arrangement done before we get too excited about the project, but, in our
view, an investor is not paying a dime for any LNG upside.

Buy maintained, ORG's balance sheet about to go to work

ORG's major capex programme is taking a breather and the company will have very substantial cashflow over the coming
years. Throw in an under-geared balance sheet and we believe the market is under-estimating the opportunities ahead.
The NSW energy sell-down and APLNG are the obvious candidates, but we wouldn't be surprised to see some accretive
acquisition from left field that could create shareholder value.
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 1100.32 1198 Call 1 1 MINI Long
 Equity Structured Products and Warrants

RBS Round Up Corner:

Monthly Market Review - August 2010

The S&P/ASX 200 Accumulation Index lost momentum finishing down 1.2% in August. Reporting season finished
on a stronger note with net positive NPAT surprise and positive outlook comments. However, market concerns
were focused on slowing global growth and the impact of a downgrade cycle.

The top- and bottom-performing sectors in August

The best performers for the month (in terms of total return) were Consumer Staples (+6.3%), Property (+3.7%) and
Industrials (+2.3%). The worst performers were Telecommunication Services (-9.1%), Financials ex Property (-3.5%) and
Information Technology (-3.5%).

S&P/ASX 200 top- and bottom-performing stocks in August

The top five performers in August were AWB Ltd (+46.0%), Elders (+42.2%), Perseus Mining (+31.6%), Lynas
Corporation (+28.9%) and Prime Infrastructure Group (+28.8%). The bottom five performers were Cudeco (-54.3%),
Murchison Metals (-24.0%), Mirabela Nickel (-20.4%), James Hardie (-18.1%) and Ten Network Holdings (-18.0%).

S&P/ASX 200 top- and bottom-performing sectors for the 12 months

The Consumer Staples sector topped the pack, with a strong 15% rise over the past 12 months. Other strong performers
were Utilities (+10.9%) and Industrials (+8.1%). Telecommunication Services (-8.2%) was the worst performer during the
period.

S&P/ASX 100 performance

The S&P/ASX 100 Index was down 1.4% in August. The top-performing stocks were Newcrest Mining (+13.9%), Alumina
(+12.1%), JB Hi-Fi (+10.5%), Aristocrat Leisure (+9.7%) and Caltex Australia (+9.4%). The bottom-performing stocks
were James Hardie (-18.1%), Billabong (-17.1%), Downer EDI (-16.7%), Primary Health Care (-10.5%) and Telstra
Corporation (-10.2%).
 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
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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
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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