CEO Conference

Resources & the Big Picture

NT Resources Week

Michael Blythe

Chief Economist

(612) 9118 1101

michael.blythe@cba.com.au

September 2012

2

CBA TEI & THE CASH RATE

3.8

4.4

5.1

5.7

6.4

7.0

Jul-97 Jul-99 Jul-01 Jul-03 Jul-05

-8

-5

-2

2

5

8

Cash

rate

(lhs)

CBA TEI*

(adv 9 mnths ,rhs)

%pa %pa

* Deviat ion from trend

Important Information

This advice has been prepared without considering your objectives, financial situation or needs, and

before acting on the advice, you should consider its appropriateness to your circumstances.

Commonwealth Bank of Australia (“CBA”) as a provider of investment, borrowing and other financial

services undertakes financial transactions with many corporate entities in Australia. This may include any

corporate issuer referred to in this report.

For US and US investors: If you would like to speak to someone regarding the subject securities

described in this report, please contact Commonwealth Australia Securities LLC (the “US Broker-Dealer”),

a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) and a

member of the Financial Industry Regulatory Authority (“FINRA”) at 1 (212) 336-7737. This report was

prepared, approved and published by Global Markets Research, a division of Commonwealth Bank of

Australia ABN 48 123 123 124 AFSL 234945("the Bank") and distributed in the U.S. by the US Broker-

Dealer. The Bank is not registered as a broker-dealer under the Exchange Act and is not a member of

FINRA or any U.S. self-regulatory organization. Commonwealth Australia Securities LLC (“US Broker-

Dealer”) is a wholly owned, but non-guaranteed, subsidiary of the Bank, organized under the laws of the

State of Delaware, USA, with limited liability.

Please see further disclaimers at the back of this document. Please also view our website at

www.research.commbank.com.au for a more detailed disclaimer.

3

CBA TEI & THE CASH RATE

3.8

4.4

5.1

5.7

6.4

7.0

Jul-97 Jul-99 Jul-01 Jul-03 Jul-05

-8

-5

-2

2

5

8

Cash

rate

(lhs)

CBA TEI*

(adv 9 mnths ,rhs)

%pa %pa

* Deviat ion from trend

The Australian economy continues to outperform other advanced economies.

Northern Territory is a significant contributor to the domestic story.

Australia & the Territory – A Gold Medal Performance

90

95

100

105

110

90

95

100

105

110

Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

REAL GDP(Sep'08= 100)Index Index

Japan

US

Australia

Europe

UK

NZ

Lehman collapse

95

105

115

125

135

95

105

115

125

135

Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12

IndexIndex

NorthernTerritory

Rest ofAustralia

DOMESTIC DEMAND(Sep'09=100)

4

CBA TEI & THE CASH RATE

3.8

4.4

5.1

5.7

6.4

7.0

Jul-97 Jul-99 Jul-01 Jul-03 Jul-05

-8

-5

-2

2

5

8

Cash

rate

(lhs)

CBA TEI*

(adv 9 mnths ,rhs)

%pa %pa

* Deviat ion from trend

Trend-type growth is a popular

forecast for the next couple of years.

Some critical assumptions underlie

these forecasts.

Globally:

– China keeps going;

– commodities prices don’t collapse;

– Europe “muddles through”; and

– the US avoids the “fiscal cliff”.

Domestically:

– the mining construction boom runs its

full course;

– fiscal consolidation is not too

contractionary; and

– households are not too conservative.

Great Minds Think Alike…

0 2 4 6

Consensus

IMF

OECD

RBA

CBA

Budget (FY)

AUSTRALIAN GROWTH FORECASTS(next two years)

%pa

Trend(3.2%pa)

5

CBA TEI & THE CASH RATE

3.8

4.4

5.1

5.7

6.4

7.0

Jul-97 Jul-99 Jul-01 Jul-03 Jul-05

-8

-5

-2

2

5

8

Cash

rate

(lhs)

CBA TEI*

(adv 9 mnths ,rhs)

%pa %pa

* Deviat ion from trend

Chinese policy settings are moving in a way that should support commodity prices.

Prices may fall further but an outright collapse is unlikely.

Will China Save Us?

-3.5

-1.4

0.8

2.9

5.0-6.0

-3.0

0.0

3.0

6.0

Jan-02 Jan-05 Jan-08 Jan-11

CHINA: GDP & POLICY (annual % change)%pa %pts

Ch in reservesrequirement ratio(6 mnth change,

adv 14 months, rhs)

GDP(ch in annual

growth rate, lhs)

Q2

-120

-60

0

60

120

-80

-40

0

40

80

Jan-06 Jan-08 Jan-10 Jan-12

CHINA: FAI & IRON ORE PRICES(momentum, ch. in growth rate) %%

AUS Iron Ore Prices(rhs)

Centralgovernment FAI

(lhs)

6

Commodities & QE

Policy makers elsewhere are also

adding stimulus.

QE measures are adding cheap

liquidity to the financial system.

Asset prices, including

commodities, should benefit.

0

120

240

360

0

2

4

6

Mar 07 Mar 09 Mar 11

Index%

US2-yr bonds

(lhs)

Fedbalance

sheet (rhs)

QE & COMMODITIES(QII 2007=100)

RBA CommodityPrice Index

(rhs)

Gold(rhs)

7

Concerns (again) that the

resources boom is over.

Need to distinguish between the

“price” part of the boom and the

“construction” part.

Price concerns are an extension of

long-running fears - previous

booms followed by busts.

The Resources Boom – Is It Over?

100

130

160

190

220

100

130

160

190

220

0 4 8 12 16 20 24 28 32 36 40 44 48 52

Qtrs from trough

TERMS OF TRADE CYCLES (trough=100) IndexIndex

Dec'71

Mar'87

Jun'61

Jun'94

Dec'68

Dec'78

8

This boom dwarfs all others.

Commodity prices are unlikely to

fully retrace – China is not going to

unwind its structural change.

The average level of commodity

prices will be higher than otherwise.

Prices will go up and down. But it is

these average outcomes that do the

work on the economy over time.

Will need to ensure we maximise

the income benefits of the boom.

This Time Is Different

100

130

160

190

220

100

130

160

190

220

0 4 8 12 16 20 24 28 32 36 40 44 48 52

Qtrs from trough

TERMS OF TRADE CYCLES (trough=100) IndexIndex

Mar'99

Dec'71

Mar'87

Jun'61

Jun'94

Dec'68

Dec'78

9

CBA TEI & THE CASH RATE

3.8

4.4

5.1

5.7

6.4

7.0

Jul-97 Jul-99 Jul-01 Jul-03 Jul-05

-8

-5

-2

2

5

8

Cash

rate

(lhs)

CBA TEI*

(adv 9 mnths ,rhs)

%pa %pa

* Deviat ion from trend

The mining construction boom will peak in the next year or two.

Will need to find new growth drivers.

What Goes Up…

0

25

50

75

100

0

25

50

75

100

2007 2009 2011 2013 2015 2017

Advanced / committedProjects

$bn $bn

Less advancedprojects

MINING CAPEX

Source: BREE, CBA

2014-15

2013-14

0

100

200

300

400

0

100

200

300

400

Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12

IndexIndex

NorthernTerritory

Rest ofAustralia

CAPEX(Sep'09=100)

10

CBA TEI & THE CASH RATE

3.8

4.4

5.1

5.7

6.4

7.0

Jul-97 Jul-99 Jul-01 Jul-03 Jul-05

-8

-5

-2

2

5

8

Cash

rate

(lhs)

CBA TEI*

(adv 9 mnths ,rhs)

%pa %pa

* Deviat ion from trend

Resource exports should ramp up

as mining construction winds down:

– need to have the supporting

infrastructure right.

The AUD typically buffers

commodity prices in local currency

terms:

– loss of that buffer requires a focus

on boosting productivity.

Maximise The Benefits – Exports & Productivity

-40

0

40

80

0.40

0.70

1.00

1.30

Sep 92 Sep 97 Sep 02 Sep 07 Sep 12

%paUSD

AUD(lhs)

CommodityPrices

(USD, rhs)

Source: RBA

COMMODITY PRICES & THE AUD

11

CBA TEI & THE CASH RATE

3.8

4.4

5.1

5.7

6.4

7.0

Jul-97 Jul-99 Jul-01 Jul-03 Jul-05

-8

-5

-2

2

5

8

Cash

rate

(lhs)

CBA TEI*

(adv 9 mnths ,rhs)

%pa %pa

* Deviat ion from trend

Heavy construction focus raises cost

risks in an environment of skill

shortages and pressures on

materials prices.

A theme in RBA commentary is the

need to contain nominal labour cost

growth and boost productivity

growth.

Maximise The Benefits – Costs

800

1000

1200

1400

800

1000

1200

1400

6 7 8 9 10

CONSTRUCTION WAGES$/wk $/wk

Real wages

May 2012

Share of labour market

12

Global investment decisions depend on more than tax regimes.

Even if Australia dropped to “1” for tax regime, would still rank No. 1 globally.

Table on

location drivers

RANKING OF COUNTRIES FOR MINING INVESTMENT BY KEY DECISION CRITERIA: 2011(highest ranking for each category is 10 so maximum score is 70) Source: Behre Dolbear Mining Survey

RANK COUNTRY ECONOMIC

SYSTEM

POLITICAL

SYSTEM

SOCIAL

ISSUES

PERMITTING

DELAYS

CORRUPTION CURRENCY

STABILITY

TAX

REGIME

TOTAL

POINTS

1 Australia 9 8 8 8 10 9 5 57

2 Canada 9 9 4 4 10 9 7 52

3 Chile 9 9 7 6 8 8 4 51

4 Brazil 7 8 5 5 5 9 6 45

5 Mexico 8 8 2 7 6 6 7 44

6 USA 8 9 3 1 10 7 3 41

7 Colombia 6 7 6 6 5 5 4 39

8 Tie Botswana 6 5 5 5 5 5 6 37

8 Tie Peru 6 6 4 4 5 7 5 37

↕

25 Russia 1 1 3 3 1 2 5 16

Maximise The Benefits – Getting Policy Right

13

Maximise The Benefits – Unhappy Households

Households are unhappy.

General feeling that the “benefits” of

the resources boom are not being

shared around while the “costs” are:

– no tax cuts - carbon tax and flood

levy instead;

– high Aussie dollar hurting some

key sectors;

– household budgets under pressure

(utilities, health etc);

– retirement savings struggling;

– job security fears.

0

25

50

75

100

For Australia, the mining boom is…

I have benefited from the mining

boom…

%

MINING BOOM PERCEPTIONS(% of respondents)

Source: Nielsen / AFR

...a good thing

...a bad thing

...notat all

...alittle

...alot

14

RBA calculations are that 50-60¢ of each $ of resources revenue remains in Aust.

Need to ensure that the benefits of the boom spread through the broader economy.

Maximise The Benefits – Sharing the Spoils

0 15 30 45

Paying domestic labour

Buying domestic services & imports

into resources sector

Payment of royalties & taxes

Payment to domestic

shareholders

Leakage offshore

SHARING THE COMMODITY BOOM(cents per $ of revenue)

Source: RBA

50-60c of every $ of

income

remains in

Australia

0

25

50

75

100

Northern WA Central Qld

%

SALARIES: WHERE SPENT(% of total earned in region)

Stays in region

Leaves region

Source: CBA Viewpoint

15

Rising incomes imply a shift to a

consumer society - typically seen as a

negative for commodities.

But we shouldn’t be afraid of this

changing source of growth - it does

bring a range of other opportunities.

The middle income group in the Asia-

Pacific region is expected to treble to

1½bn by 2020. It will age as well.

Older, middle income populations want:

– larger and better quality housing;

– more and better quality food;

– more consumer durables;

– more financial & health services;

– more education services;

– more holidays.

Finding A New Source Of Growth – the Older Middle Income Consumer

5

15

25

35

45

0

1

2

3

4

2009 2020 2030

Bn

INCOME & DEMOGRAPHICS

Source: Kharas & Gertz/United Nations

Years

Number of middle income

earners (Asia-Pacific,

lhs)

Median age (East Asia, rhs)

16

European Investors:

This report is published, approved and distributed in the UK by the Bank and by CBA Europe Ltd (“CBAE”). The Bank and CBAE are both registered in England (No. BR250 and

05687023 respectively) and authorised and regulated in the UK by the Financial Services Authority (“FSA”). This report does not purport to be a complete statement or summary.

For the purpose of the FSA rules, this report and related services are not intended for retail customers and are not available to them. The products and services referred to in this

report may put your capital at risk. Investments, persons, matters and services referred to in this report may not be regulated by the FSA. CBAE can clarify where FSA

regulations apply.

Singapore Investors:

This report is distributed in Singapore by Commonwealth Bank of Australia, Singapore Branch (company number F03137W) and is made available only for persons who are

Accredited Investors as defined in the Singapore Securities and Futures Act and the Financial Advisers Act. It has not been prepared for, and must not be distributed to or

replicated in any form, to anyone who is not an Accredited Investor.

Hong Kong Investors:

This report was prepared, approved and published by the Bank, and distributed in Hong Kong by the Bank's Hong Kong Branch. The Hong Kong Branch is a registered institution

with the Hong Kong Monetary Authority to carry out the Type 1 (Dealing in securities) and Type 4 (Advising on securities) regulated activities under the Securities and Futures

Ordinance. Investors should understand the risks in investments and that prices do go up as well as down, and in some cases may even become worthless. Research report on

collective investment schemes which have not been authorized by the Securities and Futures Commission is not directed to, or intended for distribution in Hong Kong.

All investors:

Analyst Certification and Disclaimer: Each research analyst, primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each

security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no

part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the report. The

analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering,

synthesizing, and interpreting market information. Directors or employees of the Group may serve or may have served as officers or directors of the subject company of this

report. The compensation of analysts who prepared this report is determined exclusively by research management and senior management (not including investment banking).

No inducement has been or will be received by the Group from the subject of this report or its associates to undertake the research or make the recommendations. The research

staff responsible for this report receive a salary and a bonus that is dependent on a number of factors including their performance and the overall financial performance of the

Group, including its profits derived from investment banking, sales and trading revenue.

Unless agreed separately, we do not charge any fees for any information provided in this presentation. You may be charged fees in relation to the financial products or other

services the Bank provides, these are set out in the relevant Financial Services Guide (FSG) and relevant Product Disclosure Statements (PDS). Our employees receive a salary

and do not receive any commissions or fees. However, they may be eligible for a bonus payment from us based on a number of factors relating to their overall performance

during the year. These factors include the level of revenue they generate, meeting client service standards and reaching individual sales portfolio targets. Our employees may

also receive benefits such as tickets to sporting and cultural events, corporate promotional merchandise and other similar benefits. If you have a complaint, the Bank’s dispute

resolution process can be accessed on 132221.