Lemphane operational update

31 January 2013

Paragon Diamonds Limited

("Paragon" or the "Company")

(AIM: PRG)

Lemphane, Operational update

·; An individual diamond value of over $2,300 per carat

·; Drilling at Lemphane is progressing well

·; Preliminary scoping study results indicate 20+Mt at under 2:1 waste:ore ratio

·; Mining Lease Application under preparation - mining commencement planned 2013

Paragon Diamonds Ltd. is pleased to announce an operational update for the Lemphane Kimberlite Project ("Lemphane"), Lesotho.

Diamond Valuation

A diamond valuation undertaken by WWW International Diamond Consultants Ltd has been performed on a limited parcel of 114 carats of diamonds produced from Lemphane Bulk Sampling. These diamonds correspond to sample results reported on 11th April 2012, which included a coarse diamond size population of diamonds of 2 cts or greater, (six diamonds which ranged in size range from 2-6.3 carats). These coarse diamonds represent 43% of the total parcel carat weight and will therefore have an overwhelming influence on the average value of the entire parcel. The highest value stone was a 3.71 carat sawable which was valued at over $2,300 per carat.

These results are very encouraging indicating the presence of large, high value diamonds in the kimberlite. The company will commission WWW to model the diamond prices once the bulk sampling has produced a large enough parcel of diamonds (circa 1000cts).

The company has plotted the diamond size frequency distribution of this sample of diamonds. This distribution produces a smooth curve, and when this curve is projected in to the larger stone sizes it indicates that we can expect to see 10.8+ stones at a frequency where they will be common enough to make up 10% of the total carats in this kimberlite. This is similar to the size frequency distribution from the published results from the Letšeng le Terae kimberlite.

Taken in combination, the drilling, bulk sampling and surface geological mapping that are all currently in progress will enable a preliminary geological resource to be determined, as well as the sizes and quality of diamonds within the kimberlite.

Drilling Programme

At Lemphane, drilling of deep delineation holes, which commenced in January, is well underway, with the first hole approaching 200m depth in kimberlite. The drilling programme is intended to delineate the kimberlite perimeter at a mean depth below surface of 400m, and a total of six holes are planned for the initial drilling total of ~2,000m. These delineation holes are intended to demonstrate geological continuity at depth and confirm an in-house tonnage estimate of circa 53Mt to -400m.

Scoping Study and Trial Mining

Work on the scoping study is progressing, and a preliminary open-pit design has demonstrated the ability to mine in excess of 20Mt of kimberlite to a depth of -180m, at a waste:ore ratio of under 2:1. On this basis, independently calculated mining costs of below US$10 per tonne are indicated. The study has also identified appropriate life-of-pit waste rock and process plant tailings disposal solutions, at minimal haul distance from the pit, and in environmentally stable locations.

Drawing on ongoing results from the scoping study, and with the recently commenced Environmental Impact Assessment now in progress, the Company is formulating its Mining Lease Application (MLA) to be presented to the Ministry of Mines in the 1st Quarter of 2013. The application will incorporate a ramp-up period of 6+ months, commencing later in 2013, and aimed at extracting and processing 100,000+ tonnes of kimberlite, anticipated to yield 2-3,000 carats of diamonds, including, at 10%+, some 2-300 carats as "specials" of 10.8 carat or larger, at grades in the region of 2-3 cpht.

This mining will continue to use the existing DMS and final recovery plant, with the introduction of a higher capacity 50 tph pre-treatment plant, which has been acquired for this task. Contract mining equipment is on site as part of the ongoing bulk sampling programme, and can commence stripping and extracting kimberlite in parallel with the ongoing bulk sample processing. Preliminary mining on a trial basis will be used to determine an initial resource for open-pit mining, together with statistically significant diamond sizes and corresponding values. When incorporated into the geological model presently under development, it is envisaged that the initial mining stage will lead into a conceptual open-pit mining operation of up to 3Mt per year, over a 7+ year life.

Investor presentation

The Company has a new investor presentation which can be found on the Company website: www.paragondiamonds.com 

In comment, Paragon Chairman Martin Doyle said: "The confirmation of large high value diamonds at Lemphane validates our decision to accelerate development of this deposit. The transition from bulk sampling to mining on a trial basis with the expected production of several thousand carats by the year end brings us closer to generating significant revenue from Lemphane. In addition to the Lemphane kimberlite, Paragon has already established an inferred resource at the Motete Dyke. With our $10m financing from our Basuto partner we are well placed to continue the development of our Lesotho projects."

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 assets which its exploration and development teams are working 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. The Environmental assessment plan and access routes and exploration camp have been completed.DMS plant constructed and bulk sampling commenced with 35,000 tonnes of ore stockpiled awaiting processing. Extended bulk sampling of a further 25 - 40,000 tonnes is possible once initial sample completed.

Motete Dyke exploration, Lesotho (85%)

Motete is a substantial kimberlite dyke (fissure system) in close proximity to the Lemphane project. The licence was awarded in December 2011. During 2012 a resource of 0.86Mct attributable to Paragon at a grade of 65 cpht and an average value of US$62/ct was defined.

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 Argyle Diamond Mine in Western Australia is the 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' large producing Orapa Mine.

Mabuki, Tanzania

Located 81km south of Mwanza, 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. The intention is to explore (detailed geophysics and sampling) and map-out, then establish drill targets and define a resource. Wardell Armstrong completed a competent persons report on Tanzania in September 2010.

In accordance with the AIM Rules, the information in this announcement has been reviewed by Stephen Grimmer PhD., MSc., a qualified geologist with over 25 years diamond exploration experience.