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
13 December 2010
Issue No. 462

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 – 20.5% stake in CGG
through
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

Better than expected eco data from both on and offshore coupled with comments from the Commerce Department that
the US trade deficit had narrowed saw US indices stronger across the board Friday. GE added 3.4% after raising its
dividend for the second time this year while JPMorgan, BOA and Amex added 1% to 1.5%. National Semiconductor shed
7.8% after reporting weaker than expected sales numbers while a number of stocks rallied into their addition to the 500
on Friday. Volumes were lower than average which will continue to be a theme as we near Christmas.

United Kingdom and Europe Commentary

UK - The FTSE managed a slight gain Friday as strong Chinese import data sparked demand for miners. However
volumes were lower than average with fears of further Chinese interest rate rises setting a cautious undertone.
Vedanta was best on ground, adding 3.2%, as copper hovered near all time highs while ENRC, Xstrata and RIO added
0.4% to 2.9%. Banks returned some of the previous sessions gains with Barclays and Standard Chartered shedding
1.4% and 2.6% with the latter hampered by broker downgrade. Diageo added 1% as it was rumoured they were in talks
with a Turkish firm in hopes of capturing some earnings within the emerging markets.
 Equity Structured Products and Warrants

Commodities Commentary
Last % Move
GOLD 1391 0.50%
OIL 87.79 -0.70%
NI 23919 1.60%
AL 2289 -1.30%
ZN 2274 -1.10%
CU 8990 0.40%
CRB -0.40%

SPI Commentary
The SPI traded up 4 pts to 4759. Open at 4755 with a high of 4763 and a low of 4730. Volume 31,786. Overnight the SPI traded up 12
pts to 4771.

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 NAB Business Confidence
US PPI, FOMC Rates decision
Wednesday AUS Westpac Consumer Confidence
US CPI
Thursday AUS Consumer Inflation Expectation
US Housing Starts, Initial Jobless
Friday AUS
US
*Dates are indicative only and may change
 Equity Structured Products and Warrants

MINI Trading Buy:

Equinox Minerals (EQNKZB) - 20.5% stake in CGG through

EQN now owns 20.5% of CGG after directors accepted the EQN offer. We see the CGG deal as a major
positive for the company. Copper is now approaching US$4.00/lb again, while EQN has lagged
following the First Quantum sell down. We believe the stock offers an attractive entry point. Best way
to play EQN is with 1-for-1 MINI EQNKZB. Strike $3.472, Stop Loss $4.17.

Source: IRESS

Citadel transaction looks good

EQN has declared the CGG (NR) offer unconditional if its interest exceeds 50%. We believe the Citadel transaction, if
successful, would be a major positive given: 1) it is NPV-accretive; 2) it is EPS-accretive once the operation starts
production; 3) it adds c30% to EQN's annual production and boosts exploration prospects; 4) it lowers group cash costs;
and 5) it dilutes the Zambian geopolitical risk. EQN now owns 20.5% of Citadel after CGG directors accepted the offer.
EQN aims to complete the deal by year end. The risk is some CGG shareholders refuse to accept the offer. Our NPV
would rise to A$6.89ps if the transaction goes ahead.

First Quantum sell down a positive, copper approaching US$4.00/lb again

On 12 November, Canada-listed miner First Quantum (NR) sold its 16% stake in EQN at US$5.75ps via a book build to
various institutions. Since then, the stock has gone sideways due to an apparent excess in the market and copper falling
from recent highs. We see the current share price lull as a buying opportunity, with copper now approaching US$4.00/lb.
We believe inventories are likely to fall to critical levels over the coming years, leading to acute pricing tension. Further,
EQN is one of the few listed companies with a single Tier-1 copper asset, making it a takeover target, in our view. An
acquirer may be willing to pay a premium for the large resource and expansion potential beyond EQN's medium-term
plans.

EQN the best way to play copper, in our view

The current quarter is likely to produce slightly lower copper production than the September quarter due to a fall in
grades, although we still expect EQN to beat its 140kt guidance. The fall in grade may be perceived by the market as a
negative due to the read-through implications for 2011 production. However, we expect completion of the CGG
transaction to offset this issue from a sentiment point of view due to the NPV accretion. EQN remains one of our key picks
going into 2011. We see the recent share price pull back as an opportunity and maintain our Buy call. Our target price
moves from A$6.51 to A$6.45.
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
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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