PRG.L Regulatory News (PRG)

Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 23 May 2014 Paragon Diamonds Limited (`Paragon Diamonds' `the `Company' or `the Group') Audited Final Results Paragon Diamonds Limited, the AIM quoted diamond development and productioncompany, is pleased to announce its audited final results for the year ended 31December 2013. Overview * Substantial progress made towards building a cash generative diamond exploration and production company with a portfolio of multi-stage projects located in known diamondiferous regions of Africa * On course to commence Stage 1 production late 2014 subject to financing and generate first revenues of US$8m per annum late 2014 at the open pit Lemphane Kimberlite in Lesotho - 20,000 carats targeted with an estimated average value of US$750 per carat * + Successfully undertook 300 carat bulk sampling programme at Lemphane, early 2013 and achieved US$2,400 per carat valuation for an individual diamond + Scoping Study based on 27Mt of kimberlite, estimated mining costs at less than US$20/tonne, capital costs of less than US$5/tonne, a notional average annual operating profit of US$35m and a 22% IRR using base case assumptions + 1,373 metres of drilling resulted in an 80% increase in the overall tonnage at Lemphane to 350m from 27Mt to 48.8Mt of kimberlite - potential positive implications to improve Lemphane's economics + Secured a steady water supply from the nearby Malibamatso River, after a water pipeline was installed capable of pumping 500 cubic metres of water to the processing plant per day + MOU signed for a 75 tonne per hour processing plant which will significantly increase production capacity at Lemphane + Awarded a Mining Lease for Lemphane for an initial duration of 10 years, after which it is renewable in accordance with the Mines & Minerals Act of 2005 for a further three consecutive 10 year periods * Secured a pipeline of highly prospective projects representing future development potential * + 85% owned high-grade Motete Kimberlite dyke in Lesotho which has a resource of 1.56Mt at 65cpht for 1M carats + Kaplamp project in Zambia which hosts 14 Lamproite pipes within a well-known diamondiferous region + Acquired 442 sq km licence in the prospective Tsabong Kimberlite field, Botswana Chairman's Statement Our objective is to build a cash generative diamond exploration and productiongroup with a portfolio of multi-stage projects located in known diamondiferousregions of Africa. With this in mind, I am pleased to report that thanks to theexcellent progress made during the year under review, subject to completing therequired funding, we expect to commence initial production and generate firstrevenues later this year at our flagship and most advanced project, the openpit Lemphane Kimberlite Project in Lesotho ("Lemphane"). Being one in a cluster of five major kimberlite pipes in a region of Lesothoknown for producing large and exceptionally high quality diamonds that sell atsome of the highest values per carat in the world, the potential of Lemphanehas always been clear to us. As a result, while we were delighted, we were notsurprised with the US$2,400 per carat valuation achieved for an individualdiamond recovered during the initial stages of our bulk sampling programme inearly 2013. Even though this stone was part of a limited parcel of 300 carats,it nevertheless indicated the presence of large high value diamonds. It waseven more encouraging that this initial small parcel of diamonds has featuresin common with nearby kimberlites of Mothae and Letšeng, such as a coarsediamond size frequency and Type IIa diamonds. Letšeng is a world class minewhere two 160+ carat diamonds were recovered and recently sold for US$68,867and US$14,636 per carat. 2013 saw us successfully implement a three pronged strategy to develop andde-risk Lemphane: a scoping study to determine the economics of the project; abulk sampling programme to confirm the presence of large high value diamonds;and a deep drilling campaign to further define the resource. All threegenerated highly positive results: the scoping study estimated all-in miningcosts at less than US$20 per tonne, capital costs of less than US$5 per tonne,a notional average annual operating profit of US$35m and a 22% IRR using basecase assumptions; the bulk sampling programme not only established surfacegrades but also included the recovery of large high value diamonds of up to 8.9carats and US$2,400/ct respectively; while the interpretation of 1,373 metresof drilling on four holes to a depth of 260m below surface resulted in an 80%increase in the overall tonnage at Lemphane to 350m from 27Mt to 48.8Mt ofkimberlite. As the scoping study was completed while the bulk sampling anddrilling programmes were on-going, it was based on mining 27Mt of ore to 280mbelow surface at a 1.3:1 waste to ore ratio. The 80% increase in tonnage to48.8Mt of kimberlite therefore has the potential to double the current volumeof kimberlite used in the scoping study with obvious positive implications forthe Project's economics. In tandem with our work on the ground and the aim of bringing Lemphane intoproduction in the near-term, during 2013 we secured a steady water supply fromthe nearby Malibamatso River, after a water pipeline was installed capable ofpumping 500 cubic metres of water to the processing plant per day. We alsosigned a Memorandum of Understanding in December 2013 to acquire a 75 tonne perhour processing plant from the Lucara Diamond Corp operated Mothae kimberlite,which will significantly increase production capacity at Lemphane. The purchaseis expected to be completed as soon as the required funding arrangements havebeen agreed and relocation of the plant is due to commence shortly afterwards.Finally and most significantly, we were granted a Mining Lease for Lemphane fora duration of 10 years after which it is renewable in accordance with the Mines& Minerals Act of 2005 for a further three consecutive 10 year periods. Underthe terms of the Lease, which were finalised in February 2014, the approvedprogramme of mining is a two year Stage 1 mine plan of 500,000 tonnes per annumfollowed by an eight year Stage 2 mine plan of 3,000,000 tonnes per annum foran initial open pit life of ten years. Thanks to the milestones achieved at Lemphane, we are now in a position tocommence Stage 1 production later this year, subject to completing the requiredfinancing. This will last for two years and involve mining 1,000,000 tonnes ofore, targeting 20,000 carats and a more than doubling of the average value percarat to approximately US$750. As well as generating revenues of approximatelyUS$8m per annum over a two year period, Stage 1 will more importantly furtherdefine an Inferred and Indicated Resource to underpin a decision to advance toStage 2 production. The bulk sampling programme demonstrated that theprocessing of larger volumes of kimberlite during Stage 1 will improveproportionally the recovery of additional larger diamonds which will then beused to determine representative grade and value estimations for Lemphane.Stage 1 will therefore provide valuable data to feasibility studies ahead of aramp up in production to Stage 2 production. In line with our strategy to build a multi-stage portfolio of highlyprospective diamond projects in Africa, in November 2013 we were awarded a new,large 442 sq km licence in Botswana. As with Lemphane, the licence has a highlyprospective address being located in the Tsabong Kimberlite field, which hostsmany world class size kimberlites including a recent 200 ha super kimberlitediscovery. A comprehensive review of historical and existing data is currentlyunderway on the licence area. Financial Results The Group generated a loss after tax of £1.3 million during the year (2012:loss of £5.1 million). In order to ensure as much funds as possible areinvested in the ground, administration costs continue to be tightly controlledand totalled £0.7 million during the year (2012: £1 million). The Group held cash of £0.2 million as at 31 December 2013 (2012: £0.5million). The Group had net assets of £30.9 million as at 31 December 2013, (2012: £30.4million) and intangible exploration assets are carried at £40.6 million (2012:£41.1 million). Group borrowings totalled £2.6 million at 31 December 2013(2012: £2.6million). Outlook Thanks to the considerable work we carried out over the course of the year, ourbelief that Lemphane, the last known significantly sized kimberlite to bedeveloped in Lesotho, has the potential to be a billion dollar resource hasstrengthened. The results of a limited bulk sampling programme are consistentwith what would be expected from a parcel of similar size from other high valuediamond populations from kimberlites mined in Lesotho such as Letšeng andMothae. Having finalised the terms of the Mining Lease post the period end, wewill now look to accelerate plans to commence Stage 1 production at Lemphanelater this year. With demand forecast to outstrip supply for the foreseeablefuture, Paragon Diamonds is well placed to take advantage of the attractivefundamentals of the diamond market, build a cash generative diamond producer,and in the process generate value for all our shareholders. The Group is in advanced stage negotiations in respect of securing the requiredfunding for Stage 1 production and I look forward to updating the market onthis shortly. Finally I would like to thank the Board, management and staff, particularly ouroperational team in Lesotho, for their continued hard work during the yearwhich has seen us achieve so much in 2013 and which subject to securing therequired financing has set us on course to commence production at Lemphanelater in 2014. Martin Doyle Executive Chairman 22 May 2014 Consolidated Statement of Comprehensive Income For the year ended 31 December 2013 2013 2012Continuing operations £000 £000 Administration costs (706) (1,073) Fair value loss in remeasuring derivative (558) -financial instrument Finance costs (57) (41) LOSS BEFORE TAXATION (1,321) (1,114) Taxation - - LOSS FOR THE year from continuing operations (1,321) (1,114) Discontinued operations Loss for the year from discontinued operations - (3,954) LOSS FOR THE YEAR (1,321) (5,068) Attributable to: Owners of the parent (1,321) (4,881) Non-controlling interests - (187) (1,321) (5,068) Other comprehensive income: Exchange differences on translation of (1,555) (2,031) foreign operations TOTAL COMPREHENSIVE INCOME FOR THE YEAR (2,876) (7,099) Attributable to: Owners of the parent (2,918) (6,763) Non-controlling interests 42 (336) (2,876) (7,099) LOSS PER SHARE From continuing and discontinuing operations Basic and diluted (pence) (0.60) (2.61) From continuing operations Basic and diluted (pence) (0.60) (0.57) Consolidated Statement of Changes in Equity As at 31 December 2013 Share Share Foreign Share Retained Total Non-controlling Total capital premium exchange based deficit interests attributable reserve payment to owners of reserve parent £000 £000 £000 £000 £000 £000 £000 £000 At 1 January 2012 1,882 42,944 1,651 316 (15,088) 31,705 3,867 35,572 Loss for the year - - - - (4,881) (4,881) (187) (5,068) Exchange differences - - (1,882) - - (1,882) (149) (2,031)on translation offoreign operations Total comprehensive - - (1,882) - (4,881) (6,763) (336) (7,099)income for the year Issue of shares 69 1,938 - - - 2,007 - 2,007 Share based payment - - - 181 - 181 - 181 Transfer of share - - - (13) 13 - - -based payment charge Arising on - - - - 81 81 (354) (273)acquisition ofnon-controllinginterest At 31 December 2012 1,951 44,882 (231) 484 (19,875) 27,211 3,177 30,388 Loss for the year - - - - (1,321) (1,321) - (1,321) Exchange differences - - (1,597) - - (1,597) 42 (1,555)on translation offoreign operations Total comprehensive - - (1,597) - (1,321) (2,918) 42 (2,876)income for the year Issue of shares 935 2,352 - - - 3,287 - 3,287 Expenses on issue of - (66) - - - (66) - (66)shares Share based payment - - - 180 - 180 - 180 At 31 December 2013 2,886 47,168 (1,828) 664 (21,196) 27,694 3,219 30,913 Consolidated Statement of Financial Position As at 31 December 2013 2013 2012 £000 £000ASSETS Non-current assets Intangible exploration and evaluation 40,635 41,151assets Derivative financial instrument 607 - Property, plant and equipment 422 769 Total non-current assets 41,664 41,920 Current assets Trade and other receivables 131 177 Inventory 38 - Derivative financial instrument 751 - Cash and cash equivalents 226 492 Total current assets 1,146 669 TOTAL ASSETS 42,810 42,589 LIABILITIES Current liabilities Trade and other payables (230) (310) TOTAL CURRENT LIABILITIES (230) (310) NON-CURRENT LIABILITIES Site restoration provision (118) (148) Loans (2,600) (2,616) Deferred tax liability (8,949) (9,127) Total non-current liabilities (11,667) (11,891) TOTAL LIABILITIES (11,897) (12,201) NET ASSETS 30,913 30,388 EQUITY attributable to owners of the parent Share capital 2,886 1,951 Share premium 47,168 44,882 Foreign exchange reserve (1,828) (231) Share based payment reserve 664 484 Retained deficit (21,196) (19,875) Equity attributable to the owners of the 27,694 27,211parent Non-controlling interests 3,219 3,177 TOTAL EQUITY 30,913 30,388 Consolidated Statement of Cash Flows As at 31 December 2013 2013 2012 £000 £000OPERATING ACTIVITIES Loss before taxation (1,321) (1,114) Adjustment for: Interest expense 57 41 Foreign exchange losses 8 6 Share based payment charge 180 181 Decrease/(increase) in trade and other 46 (11)receivables Increase in inventory (38) - (Decrease)/increase in trade and other (80) 227payables Fair value loss on remeasuring derivative 558 -financial instrument NET CASH OUTFLOW FROM CONTINUING OPERATIONS (590) (670) NET CASH OUTFLOW FROM DISCONTINUED - (282)OPERATIONS Net cash outflow from operations (590) (952) INVESTING ACTIVITIES Purchases of property, plant and equipment (94) (272) Expenditure on exploration licences (975) (1,805) Net cash outflow from investing activities (1,069) (2,077) FINANCING ACTIVITIES Proceeds from issue of share capital 1,150 1,725 Proceeds from derivative financial 221 -instrument Expenses of issue of share capital (66) - Increase in loans 88 558 Net cash inflow from financing activities 1,393 2,283 DECREASE IN CASH AND CASH EQUIVALENTS (266) (746) Cash and cash equivalents at beginning of 492 1,238year Effects of foreign exchange - - CASH AND CASH EQUIVALENTS AT end of YEAR 226 492 Notes 1. The financial information contained in this announcement does not comprise full statutory accounts. 2. The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU. The financial statements have been prepared on the historical cost basis. 3. The audit report accompanying the annual report while unqualified contains an emphasis of matter in respect of going concern. 4. The Annual General Meeting of the Company will be held at the Company's registered office, Dixcart House, Sir William Place, St Peter Port, Guernsey, GY1 1GX, on 8 July 2014 at 11.00 am. 5. The report and accounts for the year ended 31 December 2013 will be posted to shareholders shortly and will be available on the Company's website at www.paragondiamonds.com in due course. **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