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
2 December 2010
Issue No. 455

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 Equinox Minerals (EQNKZB)
quality ideas for warrant traders and
investors. BHP Billiton (BHPKZJ)
Origin Energy (ORGKZC)
Australian Strategy
Scoreboard, commentary
SPI Comment, Events & Dividends
MINI Trading Buy – Copper set to soar
MINI Trading Buy – Deploying the cash
MINI Trading Buy – Cashflow set to surge
Monthly Market Review - November 2010

Daily Monitor
 Equity Structured Products and Warrants

Overnight Commentary

United States Commentary

Markets enjoyed a strong night, their best in 3 months, on better than expected US economic data, ISM Manufacturing
expanded for a 16th straight month, which followed a recovery for European markets on hopes that the bank contagion
will be contained and also thanks to stronger China PMI.

US economic data strength included beats by ADP Employment, 93k vs 70k, an ever so slight beat by ISM
Manufacturing, 56.6 vs 56.5, ISM Prices Paid, 69.5 vs 71, and a good beat by Construction Spending +0.7% vs -0.3%
expected. The Fed Beige Book has also hit the screens and it has been a good turnaround from last month. The Beige
Book showed that 10 out of 12 Fed regions showed the economy gained strength with Philadelphia and St Louis mixed.

Movers - All stocks on the Dow were in positive territory overnight with Home Depot the best up 4.8%. The growth stocks
also enjoyed a good night with Microsoft, United Tech, Alcoa, Caterpillar, 3M and GE all up more than 2.5%. On the
S&P100 all stocks but 1 were positive with a good mix of stocks up the top of the leaderboard. Regions Financial,
Schlumberger, Lowes, Comcast and MasterCard were all up more than 4%.

United Kingdom and Europe Commentary

European markets enjoyed a good night thanks to speculation of a larger financial rescue. UK and European
manufacturing also came in ahead of expectations with UK manufacturing growing at its fastest pace in 16 years. Banks
were the best on the market after recent weakness with RBS and Lloyds the best up 6.1% and 6% respectively. The
miners also enjoyed a good night with base metal prices moving higher on the back of the better China PMI. BHP and RIO
were up 3.4% and 3.1% respectively with Xstrata the best of the miners up 5.8% with the stock also helped by a broker
upgrade.
 Equity Structured Products and Warrants

Commodities Commentary
Last % Move
GOLD 1387 0.1%
OIL 86.74 2.6%
NI 23519 2.2%
AL 2319 2.8%
ZN 2160 2.3%
CU 8585 2.7%
CRB 2.5%

SPI Commentary
The SPI traded down 65ts to 4595. Open at 4660 with a high of 4602 and a low of 4562. Volume 33,606. Overnight the SPI traded up
64pts to 4657.

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 GDP (QoQ) , Existing Home Sales
Wednesday AUS
US MBA Mortgage Applications , Core Durable Goods Orders (MoM) , Initial
Jobless Claims (MoM) , Personal Spending (MoM) , New Home Sales
Thursday AUS
US
Friday AUS RBA Governor Stevens Speaks
US
*Dates are indicative only and may change
 Equity Structured Products and Warrants

MINI Trading Buy:

Equinox Minerals (EQNKZB) - Copper set to soar

Despite the recent rally in the red metal EQN has still yet to appreciate, trading around the support
level of $5.60. The Citadel transaction could provide EQN with a high-quality asset without
overpaying, in our view. We maintain our Buy recommendation on the stock, with EQN continuing to
look attractive to us relative to the sector. Best way to play EQN is with 1-for-1 MINI EQNKZB. Strike
$3.472, Stop Loss $4.17.

Source: IRESS

Copper - Ticks all the right boxes

“Copper comes a cropper” is not a headline we expect to see any time soon. Long our most favoured base metal, copper
does exactly what it says on the tin, and is one of the few commodity portfolio exposures where you can sleep soundly at
night. The biggest derailer to the copper story is the economic macro, where periods of risk-off markets tend to hurt
attitudes towards copper. But copper is very much a paucity of supply story. Probably the only thing you have to worry
about is when, not if, copper exceeds its July ‘08 nominal high of US$8,940/t US$4.05/lb) before proceeding to vault the
US$10,000/t marker.

• Copper demand underpinned by China, is surging and we forecast a 10% yoy rise in 2010 to a record 18.50mt
with a 2010-14F demand CAGR of 5% pa.
• We view 2010 as a balanced market and a prelude to inventory draining supply shortfalls ahead with a cumulative
supply shortfall of 1.20mt through to 2014F.
• Copper is also a supply story. World copper mine utilisation rates are woefully low at 78%. Head grades are
falling; smelters are starved of vital concentrate feedstock and where are the much needed new copper
whoppers?
• Exchange stocks of copper have been handsomely eroded. LME stocks are at 11-month lows and down 33%
since their February ’10 high, whilst Shanghai stocks have fallen 54% since their April ’10 record high to a one-
year low.
• Our 2010 price forecast is raised by 2% to US$7,300/t ($3.31/lb) and 2011 by 7% to US$8,265/t ($3.75/lb). By
2014, an end-cycle price peak is forecast, with the average price forecast to be a mouth-watering US$10,475/t
(4.75/lb). Our long-term copper price has been raised 11% to US$5,500/t ($2.50/lb).
Security ExPrc Stop Loss CP ConvFac Delta Description
EQNKZA 2.2578 2.71 Long 1 1 Long MINI
EQNKZB 3.472 4.17 Long 1 1 Long MINI
 Equity Structured Products and Warrants

MINI Trading Buy:

BHP Billiton (BHP.AX): Deploying the cash

We have come off research restriction following BHP's withdrawal of the PotashCorp bid. In
our view the stock offers a compelling investment case and we have reinstated our Buy
recommendation.

Source: IRESS

Capital management a positive and probably only the start, in our view
BHP has reinstated its US$13bn buyback program, which has US$4.2bn to be completed. The buyback will be on market
and for Plc shares (at this stage there is no off-market purchase of Ltd shares). When completed the buyback will
increase RBS Research’s FY11F and FY12F EPS by 2%. We view the reinstatement as an interim measure in terms of
capital management. We believe the BHP board will review further capital management initiatives ahead of the interim
results in February 2011. RBS Research forecast BHP will be in a net-cash position by the end of FY11, leaving directors
with the options of reinvesting in the business, increasing dividends, buying back shares or all of the above.

We see plenty of room to increase dividends

We believe BHP has the capacity to increase dividends substantially. Currently, RBS Research estimate BHP is on an
FY11 dividend yield of only c2%. The US$0.93 dividend equates to about US$5.1bn, which compares to operating cash
flow of about US$29bn. In our view, BHP could materially increase this amount on a sustainable basis. We believe this
would be another positive and that it would demonstrate management's confidence in future cash flow.

Options for M&A appear limited now that PotashCorp is off the agenda
Opportunities for BHP to acquire a company that would make a meaningful impact now look limited. It seems that an oil &
gas acquisition might be the easiest option for assets material to BHP. We see no reason for such a deal to be pursued
straight away and we believe any such transaction would likely be six months away to allow for adequate due diligence.

Investment view - Buy - we think BHP offers a compelling investment case

BHP is trading at a 15% discount to RBS Research’s NPV and on a PE of 10x FY12F. We advise investors to be
overweight BHP going into the next reporting season, as further capital management initiatives may provide another
positive catalyst for a re-rating. RBS Research reinstate full research coverage with a Buy recommendation and A$51.15
target price (was A$51.48).

RBS MINIs over BHP

Security ExPrc Stop Loss CP ConvFac Delta Description

BHPKZJ 32.1971 35.28 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 1116.75 12.20 Call 1 1 MINI Long
 Equity Structured Products and Warrants

RBS Round Up Corner:

Monthly Market Review - November 2010

Australian equities fell 1.7% in November, as risk aversion dominated capital markets as
European sovereign risk re-emerged along with concerns that China may over-tighten as it
works to quell inflation. The defensive sectors outperformed, Health Care by 7.4% and
Telecoms by 6.6%.

Australia's performance vs the world

In local currency, the All Ordinaries (-1.2%) underperformed the US S&P 500 (-0.2%) but outperformed the
World MSCI ex Australia Index (-1.7%) and the regional MSCI ex Japan Index (-1.6%).

The best- and worst-performing sectors

The best performers for the month were Health Care (+5.7%), Telecommunication Services (+5.0%) and
Energy (+1.3%). The worst performers were Consumer Staples (-5.3%), Financials ex Property (-4.2%) and
Consumer Discretionary (-4.2%).

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 Cudeco (+55.6%), Intrepid
Mines (+37.8%), Linc Energy (+34.0%), Riversdale Mining (+27.3%) and Sundance Resources (+24.1%). The
bottom-five performers were Hastie Group (-29.0%), Aristocrat Leisure (-25.9%), Infigen Energy (-21.8%),
Karoon Gas Australia (-21.3%) and Murchison Metals (-20.3%).

Consensus earnings revisions

The top-five upgrades were Intoll Group (+18.1%), Iluka Resources (+15.1%), Alumina (+13.9%), Incitec Pivot
(+8.1%) and Caltex Australia (+6.5%). The top-five downgrades were BlueScope Steel (-31.8%), Aristocrat
Leisure (-31.2%), CSR (-12.1%), AWE (-11.8%) and OneSteel (-8.9%).
 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
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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