Fundraising and Issue of Equity

26 January 2012

Paragon Diamonds Limited

("Paragon" or the "Company")

(AIM: PRG)

Fundraising and issue of equity

Highlights

·; £1.7million ($2.7million) raised from placing

·; 5,948,275 shares issued at 29 pence per share

·; Proceeds used to rapidly advance exploration work at Motete Dyke, Lesotho

Paragon Diamonds Limited, the African-focused diamond explorer and developer, is pleased to announce it has completed a placing of 5,948,275 new ordinary shares in the company at a price of 29 p, raising gross proceeds of £1,725,000 ($2,700,000).

The new shares will rank pari passu with all existing ordinary shares, and dealings on AIM are expected to commence in the new ordinary shares on 1 February 2012.

Following the issue as described above, the Company's issued share capital now consists of 194,125,329 ordinary shares of 1p each.

Commenting today, Paragon Chairman Francesco Scolaro said: "I am pleased to announce the successful completion of a fundraising which will enable the Company to rapidly advance the Motete Dyke exploration programme to scoping study, with a view to evaluating near term production."

For further information:

Notes to editors

Paragon Diamonds is looking to rapidly develop producing and exploration diamond properties into a portfolio of high value assets located within Africa. To date it has secured a series of alluvial and hard rock assets which its exploration and development teams are working on to progress. The core focus at present are the companies hard rock licences located in Lesotho, a major producing diamond region. The Projects include:

Lemphane Kimberlite project Lesotho (85%)

Lemphane is one of five known diamond bearing kimberlite pipes within Lesotho, located 5km from the Liqhobong project . An NS43-101 report carried at Lemphane indicates pipes may contain 30 million tones of kimberlite with white colour diamonds already recovered (19 recovered). The Environmental assessment plan and access routes and exploration camp have been completed.DMS plant constructed and bulk sampling commenced with 25,000 tonnes of ore stockpiled awaiting processing. Extended bulk sampling of a further 25,000 tonnes once initial sample completed.

Motete Dyke exploration, Lesotho (85%)

Motete is a substantial kimberlite dyke (fissure system) in close proximity to the Lemphane project. Known to be diamondiferous and currently undergoing initial exploration & micro diamond analysis with results expected Q1 2012. The licence was awarded in December 2011.

Kaplamp diamond hosting Lamproite', Zambia

Kaplamp is a large prospecting licence known to host 14 Lamproite pipes within a known diamondiferous region and with five high profile targets identified for initial evaluation. The area is highly prospective as De Beers recovered significant amount of stones in 60's and 70's but relinquished area as Lamproites were not yet recognised as viable. The Arglye Diamond Mine in Western Australia is most renowned Lamproite hosted mine - in 1994 produced 39% of worlds diamond production.

Kopje kimberlite exploration, Botswana

This newly awarded prospecting licence covering 15 km sq in highly prospective area 35 km east of DeBeers' largest produce Orapa Mine. Initial exploration work planned for Q1 2012.

Konomo Alluvial Mine, Sierra Leone

This Alluvial diamond project covers 162km2 and has an indicated and inferred resource of 119,000 carats with large tracts of Bafi river remaining unexplored. Circa 3,000 carats recovered by Paragon since operations commenced, with a parcel that includes c.34.18 carat "special" stone and 10.18, 10.46 and 9.96 carat gem quality stones.

Mabuki, Tanzania

Located 81km south of Mzanza, Tanzania with Good infrastructure nearby (roads, power, water, transport) the licence sits within a known Kimberlite Field. Artisanal activity occurs to the west of licence with diamond bearing gravels identified off the edge of the licence. Intention to explore (detailed geophysics and sampling) and map-out, then establish drill targets and define resource. Wardell Armstrong completed a competent persons report on Tanzania in September 2010.