PRG.L Regulatory News (PRG)

1 June 2012

Paragon Diamonds Limited

("Paragon" or the "Company")

(AIM: PRG)

Paragon Diamonds, the AIM quoted, African focused diamond production and development company, today announces its final results for the year ending 31 December 2011.

A copy of the Annual Report and Accounts and notice of AGM is being posted to shareholders shortly and will be available from the Company's website - www.paragondiamonds.com

Strategic

·; The Company's focus is to fast track the Lesotho projects into production and for Paragon to become a producing diamonds company in the near future

·; 2012 is set to be an important year for the development of projects in Lesotho with all resources now fully focused on bringing them into production

·; Given the development potential in Lesotho the Board put the Sierra Leone operations on care and maintenance from August 2011 to focus manpower and resources in Lesotho

·; The Board is currently reviewing options with regard to the assets in Sierra Leone

Acquisition of IDC in two separate tranches during the year and post year end result in The Company's interest increasing to 100% for the Lesotho operations

Financial

·; Cash balance of £1.2m as at 31 December 2011 and further fundraising of £1.7m post period end to fast track Lesotho projects in 2012

·; Loss during the year of £14m mostly attributable to an impairment charge of £14.7m (a non-cash charge relating to the write down of Sierra Leone assets)

·; £4.2m gain recognised during the year on acquisition of further interest in IDC (a non cash increase in the asset value of IDC)

·; Operating costs and administrative costs reflect full 12 month accounting period (Comparative period was for 2 months)

Operations

·; Lemphane (Lesotho)

o Bulk sampling underway with 5,000 tonnes processed to date

o Initial grade of 2.2cpht, in line with other prominent Lesotho Kimberlites

o Further 25,000 tonnes stockpiled awaiting processing over coming months

·; Motete (Lesotho)

o Awarded licence in December 2011, rapid exploration work undertaken

o Initial modelled grade in excess of 100cpht and in excess of 1 million tonnes

o Further licences under application

·; Sierra Leone

o The Board have focused the Company's resources on fast tracking the Lesotho projects

o Diamond plant on care and maintenance for the foreseeable future until Board concludes the review of options available

o Mining licence costs in Sierra Leone have escalated which would have added further costs to the Company and detract resource for the Lesotho projects

Commenting today Frank Scolaro, Chairman, said: "I am delighted by the progress we have made during our first full year since listing especially in Lesotho where the ongoing results have proved consistently encouraging. The Board is particularly happy with its decision to focus our efforts on the Lesotho projects given the increasing confidence in our ability to get the projects into production and the support of shareholders through a recent placing to allow us to fast track this development. However, as a result of our focus on Lesotho we have put our operations in Sierra Leone on care and maintenance. This has required us to write down the value of its assets in Sierra Leone for accounting purposes incurring an impairment charge (a non-cash charge). I would like to stress this has not affected our cash balance and more importantly allowed us to generate significant on-going cost savings which can be re-invested into fast tracking our projects in Lesotho. We are now very focused on building the Company around the Lesotho projects and delivering further rapid development of the Motete Dyke system and bulk sampling at Lemphane. I look forward to reporting on the results at both of these key projects over the coming months"

For further information:

Chairman's Statement

I am pleased to report on the progress of Paragon Diamonds Limited (the "Company" or the "Group") becoming a successful hard rock exploration and development company. It has been an exciting year for Paragon, with the completion of the acquisition of a further interest in International Diamond Consultants ("IDC") adding significant assets to our existing portfolio.

The acquisition of a further 54.2% interest in IDC strengthened the Group's asset base considerably and increased its interest to 83.7% in both the Lemphane and Motete kimberlite projects in Lesotho, and to 98.5% in the Kabale River and Kaplamp exploration projects in Zambia and the Kopje exploration project in Botswana.

The activities of the Group over the last year have mainly focussed on completing the integration of the IDC portfolio and the commencement of a rapid exploration and bulk sampling programme on our Lemphane kimberlite pipe in Lesotho, both of which have returned very encouraging results.

Lemphane - Lesotho

This has been the main focus of the Group since it took operational control in May 2011 of Meso Diamonds, which holds the Lemphane licence. Lemphane is one of five major diamondiferous kimberlite pipes in Lesotho and Paragon is currently undertaking an extensive bulk sampling programme with the intention of establishing what the Group hopes will prove to be the favourable development potential of the pipe.

Lesotho is famous for its large and exceptionally high quality diamonds, which fetch some of the highest values per carat of any diamonds in the world.

In the short period of time since taking control, the Group has acquired, assembled and commissioned a pilot scale bulk sampling plant and commenced the sampling of 30,000 tonnes of stockpiled ore body. The initial results from the pipe have been positive with an initial grade of over 2cpht and a high average stone size, in line with other prominent Lesotho kimberlite pipes. To date over 5,000 tonnes have been processed and the quality of all diamonds is generally high, the largest stones being over 6 carats and with virtually all stones being of gem quality including some coloured stones.

I am pleased with our rapid progress so far and we intend to continue this momentum by completing our 30,000 tonne sample, followed by a delineation drilling programme with a view to establishing the parameters of the pipe and moving towards establishing a resource.

Motete - Lesotho

In late November 2011 the Company's subsidiary Botle Diamonds was awarded a new prospecting licence covering 23.4 km² and including a known kimberlite dyke. Paragon has rapidly begun exploration work and numerous micro-diamond samples indicate an anticipated grade of around 100 cpht which by Lesotho standards is exceptionally high. A bulk sampling programme of 1,500 tonnes has been commenced using the existing plant and equipment at Lemphane with results expected over the coming months. The dyke has been estimated to contain in excess of 1 million tonnes of accessible kimberlite and a drilling contract has been signed with the anticipation of developing an initial resource by mid 2012.

Botle Diamonds has also applied for three further prospecting licences with a combined area of 74 km² on adjacent ground, which we deem to be highly prospective for kimberlite dykes. I look forward to moving these applications forward and, if successful, developing them as efficiently as we have done our other projects.

Konoma - Sierra Leone

The Group continued its alluvial mining during the first half of 2011 producing 3,400 cts and recording two sales totalling 3,630 cts. On 31 August 2011, the Group announced it was placing its Konoma Alluvial Diamond Mine on care and maintenance due to a deterioration in the fiscal regulatory environment in Sierra Leone, which involved large increases in the annual cost of holding title from $50,000 to $500,000 for each of the Group's four mining licences. The Group is working towards converting the licences to small scale mining licences, which should attract significantly lower annual rents, by bringing in local partners to hold 25% of the operating entity. Due to this and ongoing uncertainty in the re-interpretation of current mining legislation by the Ministry of Mines of Sierra Leone, the operations currently still remain on a care and maintenance programme and an impairment of £14.7 million has been recognised in the year.

Financial results

With the placing of the operations in Sierra Leone on care and maintenance during the year, only two diamond sales were conducted generating revenue of £731,000 (2010: £349,000) for a total of 3,630 cts (2010: 2,837 cts). The revenues have been limited as a result of the mine in Sierra Leone being placed on care and maintenance during the year.

The Group generated loss after tax of £14,044,000 during the year (2010: £1,138,000 loss) which included a £14,704,000 (2010: £nil) impairment in respect of the Sierra Leone mine. This impairment is a non-cash expense and represents the reduction in value of the Sierra Leone mine held on the balance sheet. Excluding the impairment in Sierra Leone and the £4,186,000 non cash gain made on the acquisition of the additional interest in IDC, the Group generated a loss for the year of £3,526,000 (2010: £1,138,000 loss). The gain on acquisition of the additional interest in IDC arose on the revaluation of the initial 44.3% interest the Group held to the value paid for the additional 54.2% acquired during the year.

Operating, administration expenses and depreciation have all increased during the year as these results represent a full years trading compared with only 2 months since the listing in 2010.

The Group held £1.2 million of cash as at 31 December 2011 (2010: £2.0 million) which along with a successful placing of 5,948,275 ordinary shares since the year end raising gross cash proceeds of £1.7 million, places the Group in a strong position to fund the ongoing operations and any potential expansion of the asset portfolio.

The Group has a strong balance sheet with net equity of £35.6 million, (2010: £28.9 million). The intangible exploration assets are carried at £41.1 million (2010: £2.5 million) including those arising on the acquisition of the further significant interest in IDC. Following the impairment, the mine in Sierra Leone is carried at a value of £3.5 million (2010: £18.5 million).

Group borrowings totalled £2.0 million at 31 December 2011 (2010: £2.0 million). The Group repaid £0.4 million of its parent company loan during the year.

The Board

I replaced Luc Huyghebaert as Chairman on 21 January 2012. I would like to thank Luc for his valuable contribution in integrating the operations of IDC with those of our existing portfolio and wish him every success for the future.

Events subsequent to the year end

In January 2012 the company completed a fundraising of £1.7m by issuing 5,948,275 new ordinary shares at 29p per share, placing the Group in a strong position to continue the rapid development of its exploration projects.

On 25 April 2012 the Group acquired the remaining 1.5% interest in IDC for £330,000 settled by issuing new ordinary shares in the Company at a price of 34p per share, giving the Group an 85% interest in the Lesotho projects and a 100% interest in the Zambia and Botswana projects.

Outlook

We have several key milestones over the coming months, including results of the continuing bulk sampling programme at Lemphane and the development of an initial maiden resource at our Motete dyke. I look forward to reporting on these developments with growing optimism and am confident that we will continue our rapid advancement of these very exciting projects in the coming year.

Finally I would like to thank all our staff for their hard work and our shareholders who continue to show support during a very exciting time for the Group.

Francesco Scolaro

Executive Chairman

1 June 2012

Consolidated statement of comprehensive income

The loss arises from the Group's continuing operations.

Consolidated statement of changes in equity

The notes on pages 20 to 41 form an integral part of the consolidated financial statements.

Consolidated balance sheet

The notes on pages 20 to 41 form an integral part of the consolidated financial statements.

Approved by the board and authorised for issue on 31 May 2012

Francesco Scolaro Simon Retter

Executive Chairman Finance Director

Consolidated statement of cash flows

The notes on pages 20 to 41 form an integral part of the consolidated financial statements