Lemphane, Operational update

Paragon Diamonds Limited

("Paragon" or the "Company")

(AIM: PRG)

Lemphane, Operational update

Highlights

·; Mining licence application submitted

·; Scoping study completed

·; Drilling program proceeding on target

·; Bulk sampling plant at full capacity

·; Preparation for trial mining underway

Paragon Diamonds Ltd. announces an operational update on its exploration and development activities in Lesotho.

Mining licence application and scoping study

The company has received its completed high level scoping study, and submitted the Project Brief and Environmental Terms of Reference as the first stages towards its ongoing Environmental Impact Assessment. A Mining Lease Application has been prepared in accordance with thee Mines & Minerals Act (2005) and been duly submitted to and acknowledged by the Ministry of Mines.

The high-level scoping study commissioned with Paradigm Project Management has been received. The study is based on open pit mining of circa 27 Mt of kimberlite to a depth of 280m below mean surface (to 2,340m ASL) based on a 6 ha kimberlite with 85 degree wall angles. The waste:ore ratio is calculated 1.3:1. The anticipated open-pit life is 10+ years including a 6 month trial mining phase of 100,000 tonnes, a 12-18 month construction period followed by mining at a rate of 1.5 Mt/year for 2 years, and full scale production of 3 Mt/yr for a further 8 years. Total mining costs are calculated at US$ 15/t.

Drilling

Drilling by Rodio Geotechnics continues with 775 m of kimberlite drilled to date. The first two holes intersected kimberlite for 280 m (to 246 m below surface) and 370 m (to 392 m below surface) respectively and indicate that the wall rock contacts taper at between 82 and 85 degrees, in line with projections. A total of 2,000 m+ of drilling is planned for this initial stage.

Bulk Sampling

The water pipeline installed at the beginning of the year is performing as intended and is capable of pumping 500 cubic metres of water to the process plant per day. Bulk sample processing continues at a rate of circa 800-1,000 tonnes per week, and it is intended to complete processing of the outstanding circa 15,000 tonnes of sample by June 2013.

Trial Mining

In anticipation of undertaking trial mining of 100,000 tonnes of material in the second half of 2013, stripping has commenced over the central portion of the Lemphane kimberlite. A corridor 100m wide and 250m long is being stripped of up to 12 m of top-soil and basalt debris to expose surface kimberlite for subsequent mining, and over 10,000 tonnes of material has been removed and stock-piled outside the pit perimeter to date.

In comment, Paragon Chairman Martin Doyle said: "I am pleased to report the successful completion of another key milestone for the project, being the submission of the mining licence application which will enable us to progress towards trial miming. The drilling is progressing as planned and with the effective solution to the water supply issues I look forward to bringing the plant up to full capacity and to updating the market on the bulk sampling and eventual trial mining programme over the coming months"

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.

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 15,000 t processed to date and 20,000 to stockpiled awaiting processing. Extended bulk sampling of a further 25 - 40,000 tonnes is possible once initial sample completed. Mining licence application submitted and drilling underway.

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.