Update on Lemphane Kimberlite Project, Lesotho

Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 12 May 2014 Paragon Diamonds Limited (`Paragon Diamonds' or the `Company') Update on Lemphane Kimberlite Project, Lesotho * Increased interest in Lemphane Kimberlite Project, Lesotho * Formal registration of Mining Lease Title * Future issuance of interest in Meso Diamonds to the Government of Lesotho Paragon Diamonds is pleased to announce that it has conditionally increased itsinterest in its Lesotho subsidiary, Meso Diamonds (Pty) Ltd ("Meso Diamonds"),from 85 per cent. to 100 per cent. by acquiring the 15 per cent. interest heldby its local partner, Mr. Martin Matekane of Matekane Mining. Meso Diamonds was recently granted Mining Lease 009/2013 over the LemphaneKimberlite Project (`Lemphane Project') in the Kingdom of Lesotho. The sale of the 15% interest to Paragon Diamonds was subject to the approval ofthe Board of Meso Diamonds as required under the terms of the Mining LeaseAgreement ("MLA") Paragraph 4 Section (h), and this approval has been dulygranted. ______________ The consideration for the 15 per cent. interest in Meso Diamonds is the issueof 35,471,510 new ordinary shares in the Company (`Consideration Shares') toMr. Matekane, which is equivalent to 12 per cent. of the Company's currentissued ordinary share capital. The acquisition is conditional on admission ofthe new ordinary shares to AIM and application will be made to the London StockExchange for the Consideration Shares to be admitted with admission expected tobecome effective on or around 19 May 2014. Following admission of theConsideration Shares, the issued ordinary share capital of the Company will be331,067,427. The terms of the MLA were duly registered under registration number 32922 withthe Deeds Registry of Maseru under the Deeds Registry Act of 1967 on 19 March2014. Under the terms of the MLA, the Government of Lesotho is entitled to begranted a 20 per cent. interest in Meso Diamonds. Following the grant of thisinterest, which is expected shortly, the Company's interest in Meso Diamondsand, hence, the Lemphane Project will reduce to 80 per cent. Also as specified in the MLA, Paragon Diamonds has agreed with the Governmentof Lesotho to sell up to 15 per cent. from its 80 per cent. interest in MesoDiamonds to accredited Basotho investors at fair commercial values if any suchpotential investors express an interest. Provision for the definition ofaccredited investors and the mechanism for determining fair commercial value isoutlined in Paragraphs 3 and 4 of the MLA, and any such sale would be subjectto approval by Paragon Diamonds and according to criteria defined in the MesoDiamonds' shareholders agreement. Dr. Stephen Grimmer, Managing Director of Paragon commented: "We welcome theMatekane family, who have partnered with us for the last three years, asshareholders of Paragon Diamonds. We now move to the critical Stage 1 miningdevelopment phase. It should be noted that Paragon Diamonds will now hold 80%of the equity in the project, together with the Government of Lesotho holding20%, terms not matched by any other comparable mining operation in the countryat this time." **ENDS** For further information please visit www.paragondiamonds.com or contact: Martin Doyle Paragon Diamonds Limited +44 (0) 20 7099 1940Simon Retter Paragon Diamonds Limited +44 (0) 20 7099 1940Lindsay Mair Sanlam Securities UK +44 (0) 20 7628 2200Catherine Miles Sanlam Securities UK +44 (0) 20 7628 2200Felicity Edwards St Brides Media and Finance Ltd +44 (0) 20 7236 1177Frank 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.