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
20 September 2010
Issue No. 412

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 RIO Tinto (RIOKZG)
quality ideas for warrant traders and
Santos (STOKZD)
investors.
Origin Energy (ORGKZC)
Australian Strategy
Scoreboard, commentary
SPI Comment, Events & Dividends
MINI Trading Buy – Diamonds are for RIO
MINI Trading Buy – You don't get something for
nothing
MINI Trading Buy – Cashflow set to surge
Monthly Market Review - August 2010

Daily Monitor
 Equity Structured Products and Warrants

Overnight Commentary

United States Commentary

US markets started well carrying on from the positive reports from Research in Motion and Oracle before a miss from
some eco data saw the market pull back and trade sideways around the flat mark before just edging up on the close.

ECO - Uni of Michigan Confidence came in below expectations at 66.6 vs 70 and down from 68.9 previously. CPI was
broadly in line with expectations.

Movers - Deere & Co and Caterpillar helped the industrials outperform after their dealer stats showed a third month of
gains. Worldwide machines sales were up 37% (recall 32% in July, 22% in June). Transports lagged with FedEx and UPS
lower again and the airlines also dropped.

United Kingdom and Europe Commentary

UK - The FTSE was strong early but succumbed to selling on the back of the US Confidence number and a downgrade
for Barclays.
 Equity Structured Products and Warrants

Commodities Commentary
Last % Move
GOLD 1274.3 -0.1%
OIL 73.66 -1.2%
NI 23200 -0.2%
AL 2180 0.7%
ZN 2151 0.1%
CU 7720 0.3%
CRB 0.3%

SPI Commentary
The SPI traded up 19 pts to 4659. Open at 4640 with a high of 4676 and a low of 4618. Volume 24,981. Overnight the SPI traded down
24pts to 4637.

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 Interest Rate Decision , Building Permits , Housing Starts
Wednesday AUS MI Leading Index
US MBA Mortgage Applications , House Price Index (MoM)
Thursday AUS
US Initial Jobless Claims , Existing Home Sales
Friday AUS
US Durable Goods Orders (MoM), New Home Sales , Fed Chairman Bernanke Speaks
*Dates are indicative only and may change
 Equity Structured Products and Warrants

MINI Trading Buy:

RIO Tinto (RIOKZG) – Diamonds are for RIO
At the recent analyst forum, RIO's CEO reiterated the company's commitment to its diamond business.
This was highlighted today with the re-start of the Argyle underground project. The outlook for the
diamond market looks positive, based on declining supply and increasing demand. We maintain our
Buy RIOKZG, Target Price $86.16.

Source: IRESS

Argyle underground project reinstatement shows RIO's commitment to diamonds

RIO has approved US$803m of capex to complete the underground block cave project at its 100% owned Argyle
diamond mine (Australia). The US$1.5bn project was originally approved in 2005, but slowed to critical development
activities during the financial crisis. The project, together with the recent completion of the US$787m Diavik underground
project in Canada (RIO 60%) illustrates RIO's commitment to the diamond business. This was reiterated by the CEO at
the recent analyst forum in Sydney.

Diamond price outlook has improved, remains positive long term

Recent outlook statements from the world's largest diamond producers, such as De Beers, highlight the positive outlook
for the diamond market. Prices in 2010 have recovered to near pre financial crisis levels on the back of production cuts
and consumer restocking. Medium term, the outlook remains positive, in our view, with a potential recovery in Western
markets, along with rising demand from emerging markets such as India and China. Overlaying the positive demand
picture is declining supply from existing diamond mines as they mature, a lack of new projects coming online, and limited
discoveries in recent times (similar to copper). We forecast an ongoing improvement in diamond prices over the medium
term, which should see RIO's Diamond business return to almost 40% EBIT margins. We believe the diamond assets
remain a quality addition to the RIO portfolio, however the earnings contribution remains low at around 2% longer term.

Positive investment view maintained

RIO is our key pick in the large cap mining space for the following reasons: 1) it is trading at a discount to NPV,
historically it has traded at a premium, 2) 2011 PE of 7.8x is cheap relative to key peers, and 3) about 70% of earnings
are from iron ore where we forecast 50%+ margins over the next few years. We maintain Buy with a slightly higher price
target of A$86.16ps (prev A$83.08) based on slight changes to our long-term operating assumptions.

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): You don't get something for nothing
Santos has finally announced a long-awaited sell-down and off-take deal inrespect of GLNG. However,
some concessions had to be given and this has disappointed the market. We still believe there is value
in Santos to be unlocked over time and maintain our Buy rating.

Source: IRESS

Total emerges with a 20% equity stake in GLNG and 1.5mtpa of off-take
STO has sold-down 15% for A$650m, which was well below the A$850m implied by the Petronas deal. Unfortunately,
STO has also been forced to forgo its US$500m second train FID payment, in return for Petronas agreeing to up its off-
take to 3.5mtpa (from 2mtpa with a 1mtpa option). On top of this, STO has vended in some more of its CSG acreage at nil
cost, although management wasn't able to put a contingent resource number on the size.

Key hurdles now funding, proving up T2 reserves and environmental approvals

STO is still targeting FID by the end of CY10 and plans to update the market on funding plans and capex numbers around
that time. Management today suggested that a further sell-down of equity and some off-take appears likely before FID,
but wasn't a necessity. We still think Santos will need at least A$1.5bn of fresh equity for GLNG in order to keep the rating
agencies happy.

No change to RBS Research’s Santos valuation and target price just yet
RBS Research will be refining the valuation assumptions over the coming weeks as the project moves closer to FID. In
isolation, the second train FID payment would remove about A$0.66/share from current valuation, but RBS Research had
been factoring in extremely conservative LNG pricing for any future volumes signed up. If anything, RBS Research’s
A$2.65/share valuation for GLNG may need to increase slightly (pre 15% sell-down).

Buy maintained post pull-back, but an investor in STO needs patience

In our view, the biggest disappointment was having to give up the US$500m second train FID payment in exchange for
'project certainty'. While we believe this was a necessary step in getting the project closer to the finish line and unlocking
value for shareholders, the market had not been expecting it after recent press speculation that Shell might get involved
with GLNG in some form of project consolidation. Overall, we still think there will be some upside as GLNG comes to
fruition. 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
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