Mining Lease finalised for Lemphane Kimberlite

Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 24 February 2014 Paragon Diamonds Limited (`Paragon Diamonds' or the `Company') Terms of Mining Lease finalised for Lemphane Kimberlite Project, Lesotho Paragon Diamonds Limited, the AIM quoted diamond development and productioncompany, is pleased to announce that further to the announcement of 14 October2013, its 85% owned Lesotho subsidiary Meso Diamonds has now finalised theterms and conditions of the Mining Lease Agreement with the Government ofLesotho for the mining of the Lemphane Kimberlite Pipe in Lesotho (`Lemphane'or the `Project'). This will allow the Company to initiate preparations for,and commence, Stage 1 production at Lemphane. * Mining Lease granted for initial ten years, renewable for three consecutive ten year periods subject to the terms of the Mines and Minerals Act of 2005. * Stage 1 of a two-stage production programme at Lemphane targeting the mining of 500,000 tonnes per annum to recover an anticipated circa 10,000 carats per year at a minimum average value of US$750/ct. * Stage 1 production intended to produce a Maiden Inferred Resource at Lemphane and definitive feasibility study (`DFS') for Stage 2 mining. The Mining Lease Agreement for Lemphane (009/2013) is held by Meso Diamondswhich is currently 85% owned by the Company and 15% owned by local Basothoshareholders. Under the terms of the Mining Lease Agreement, the Government ofLesotho will now hold an interest of 20% in the Project, and 10% of the Projectinterest held by the Government will be free carried with the other 10% to befunded by the Government through its share of Project dividends. Under theMining Lease Agreement there are provisions to maintain a 15% local Basothoshareholding in the Project. An initial royalty of 4% will be payable to theGovernment on production and is subject to review within five years. The MiningLease Agreement has an initial term of ten years and is renewable in accordancewith the Mines & Minerals Act of 2005 for a further three consecutive ten yearperiods. Chairman of Paragon Diamonds, Martin Doyle said: "We are delighted that theterms of the Mining Lease for Lemphane have now been finalised. Havingpreviously recovered stones of up to 8.9 carats with values in excess ofUS$2,400/ct, we have already demonstrated Lemphane's potential to yield largehigh-value diamonds. We are now advancing our planning for Stage 1 production.As well as generating significant revenues, Stage 1 production is expected toincrease the average value per carat (a consequence of the higher amount oftonnage mined), build on the robust economics already identified and alsoprovide a bankable Mineral Resource. I look forward to providing furtherupdates to shareholders as we look to establish Lemphane as another world classdiamond mine in Lesotho." Operational Update The Project is a six hectare kimberlite pipe located in a prolific diamondproducing region of Lesotho. A 3D geological model for Lemphane was completedin late 2013 based on the interpretation of 1,373 metres of drilling on fourdrill holes, and resulted in an 80% increase in the overall estimatedkimberlite tonnage at Lemphane to 48.6Mt to a depth of 350m. This increasedtonnage is very positive for the project as it has the potential to extend thelife of mine by approximately eight years with minimal additional capitalexpenditure. A bulk sampling programme carried out by the Company in 2013 establishedsurface grades and resulted in the recovery of large high value diamonds of upto 8.9 carats and US$2,400/ct respectively. In their recent audit report, theMSA Group, the Company's bulk sampling consultants, suggest that due to thelikelihood that bulk sampling at depth will be unfeasible, it is expected thatan Inferred Mineral Resource classification will be the maximum that can beachieved at Lemphane. An Inferred Mineral Resource estimate (grade and value atdepth) can be established by extrapolating `statistically robust surfaceproduction or trial mining results' as was successfully applied at the LetšengMine (Gem Diamonds plc.) and at the Mothae Project (Lucara Diamond Corp.), bothof which are located close to Lemphane. As well as generating anticipated revenues in excess of US$8m per annum, theCompany's Stage 1 production programme at Lemphane, which is due to commence in2014, will be of sufficient size to lead to a Mineral Resource at the Inferredlevel. Stage 1 production will cover a two year period during which time it isintended that 1Mt of kimberlite will be mined and processed for the expectedrecovery of at least a total of 20,000 carats at an estimated minimum value ofUS$750 per carat at a provisional 2 mm production cut-off. Based on preliminarysize frequency distributions, comparable to the Mothae Kimberlite, the recoveryof up to 2,000 carats of "special" stones (i.e. 9.8+ carats) is anticipated,including diamonds of up to 100 carats in size. The Company remains confidentof achieving US$1,500 per carat for Stage 2 production with the expectedrecovery of significantly larger stones as a direct result of the increase intonnage processed. The Company now expects to conclude advanced stage negotiations on thefinancing of Stage 1. This financing is intended to cover the entiredevelopment costs of Stage 1 as well as providing initial working capital. In accordance with the AIM Rules for Companies, the information in thisannouncement has been reviewed by Stephen Grimmer PhD., MSc., a qualifiedgeologist with over 25 years diamond exploration experience. **ENDS** For further information please visit www.paragondiamonds.com or contact: Martin Doyle Paragon Diamonds Limited +44 (0) 20 7099 1940 Simon Retter Paragon Diamonds Limited +44 (0) 20 7099 1940 Lindsay Mair Sanlam Securities UK +44 (0) 20 7628 2200 Catherine Miles Sanlam Securities UK +44 (0) 20 7628 2200 Felicity Edwards St Brides Media and Finance Ltd +44 (0) 20 7236 1177 Frank Buhagiar St Brides Media and Finance Ltd +44 (0) 20 7236 1177 Notes Paragon Diamonds has a pipeline of projects in Lesotho, Botswana and Zambia,the most advanced of which is its Lemphane Kimberlite Pipe Project in Lesotho,located close to the world class Letšeng mine, Lesotho's largest diamond mine.Lemphane is the last known world-class sized kimberlite to be developed inLesotho. Among the stones recovered in the Company's 2013 bulk samplingprogramme were several large high value stones of up 8.9 carats in size andindividual diamond values in excess of US$2,400/ct have been achieved,demonstrating the potential for Lemphane to hold large and valuable diamonds.The first of a two stage production programme is due to commence in 2014 whichwill further define the resource at Lemphane. As increased tonnages ofkimberlite are processed the proportion of larger diamonds recovered willimprove, increasing the average value of diamonds recovered at the project, aswas the case at Letšeng. Stage 1 production will cover a two year period during which 1 Mt of kimberlitewill be mined and processed out of the currently estimated 48.6Mt of kimberlite(to 350m depth) at the site, using a 75 tonne per hour processing plant. TheCompany is targeting 20,000 carats during Stage 1 with an estimated minimumvalue of US$750 per carat that is expected to generate in excess of US$8mrevenues per annum. Revenues will be reinvested to further develop Lemphane andcomplete a bankable feasibility study, a 3D geological model and a substantialinferred resource ahead of commencing the Stage 2 production phase. Stage 2will see production ramped up to 3Mt/year with peak production expected to hit65,000 carats per year of high value diamonds.