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Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 28 January 2015 Paragon Diamonds Limited (`Paragon' or the `Company') Binding Memorandum of Understanding signed for US$12m equity and debt finance package Paragon Diamonds Limited, the AIM quoted diamond development company, ispleased to announce that it has signed a legally binding Memorandum ofUnderstanding (`MOU') with International Triangle General Trading LLC (`ITGT'or the `Investor') with regards to a US$12m equity and debt financing package.ITGT is a privately owned international investment group, with a focus onconstruction, automobiles, real estate and banking. ITGT was established in1991 and is based in Dubai, the wider Middle East and China. The proceeds willfund Stage 1 production at Paragon's 80%-owned Lemphane Kimberlite Pipe Project(`Lemphane') in Lesotho, which is located among a cluster of kimberlites knownfor producing large, high value diamonds. This update is in line with Paragon'sobjective to build a leading vertically integrated diamond company withsignificant interests across the investment grade diamond value chain from themine to the final investor and the consumer. The key terms of the MOU are summarised below: * Terms have been agreed for the funding of Stage 1 production at Lemphane that will involve the extraction of approximately 1 million tonnes of kimberlite over two years and according to an independent report, is expected to lead to the recovery of over 100 diamonds larger than 9 carats, including some stones over 100 carats in size. * A US$12m investment in Paragon from ITGT which is comprised of a mixture of new equity and a secured loan note resulting in limited dilution to existing shareholders. * ITGT will subscribe for 98 million new ordinary shares of 1p each in the Company (`Ordinary Shares'), at 5.5p share raising US$8.09m, the subscription price represents a 4.8% discount to the closing market price as at 27 January 2015. * + Taking into account the 63 million ordinary shares which were purchased and cancelled by the Company at 3p per share from Lanstead Capital L.P. (`Lanstead') as announced on 11 November 2014 the net dilution for existing shareholders is significantly reduced * Issue of US$4m three year secured loan note guaranteed by Paragon and its 100% owned subsidiary Meso Diamonds (`Meso') with a 10% per annum coupon payable annually in arrears. The loan note will be secured as senior debt with guarantees and debentures granted by Paragon and Meso, including security over the plant and machinery at Lemphane. * The Investor will be entitled to appoint up to two nominees to the Board of Paragon. * The Investor intends to increase its interest in Paragon through the acquisition of existing Ordinary Shares including the purchase of 9.09 million Ordinary Shares which are currently held by Titanium Capital at a price of 5.5p per share. This will bring Titanium's interest in Paragon on a fully diluted basis (allowing for the conversion of loans to Ordinary Shares) below 30%. * In addition, Obtala Resources Limited and Grandinex International Corp collectively have agreed to sell 40 million shares in the Company to ITGT at a price of 5.5p per share. * To ensure that the funding package was secured on appropriate terms for shareholders, Stage 1 production at Lemphane is now expected to commence in Q2 2015. * + As previously announced, the design of the plant has been finalised and construction has commenced, including ordering of key long lead time items, ensuring minimal down time between now and the commencement of Stage 1 production. * The Investor has confirmed that it will support Paragon with an additional loan should any suitable opportunities to acquire a proven diamond resource arise. The Company is currently evaluating strategic opportunities within Africa. Further announcements regarding the issue of the 98 million new Ordinary Shares(and their subsequent admission to trading on AIM) and the secured US$4m loannote to the Investor will be made as soon as practicable. Paragon's Chairman, Philip Falzon Sant Manduca said, "This US$12m financepackage demonstrates our ability to meet the goals we set ourselves,specifically limiting net dilution for existing shareholders and securing asignificant cornerstone investor that shares our vision of building Paragoninto a major player in the diamond world. Under the terms of the MOU, newequity is to be issued, near existing market prices, while the effectivere-issue of shares we recently re-purchased from Lanstead will make up aroundtwo thirds of the new shares. We have secured debt financing on reasonableterms and, in my view, this finance package confirms that a well-run diamondcompany such as Paragon, with strong resource potential in the right assetclass, can attract substantial funds without having to give the Company awaycheaply, whatever the stage of development. "Most importantly, we have secured a proactive new shareholder, which is ahighly respectable and influential investment group in Dubai, the wider MiddleEast region and in China. We believe Dubai is going to rapidly grow into one ofthe major diamond centres in the world. Paragon is now well placed to takeadvantage of the expected growth in market share and concomitant diamonddistribution activity in Dubai and elsewhere. I have no doubt that our newpartners will greatly assist us in achieving our ambition to verticallyintegrate our business and distribution reach from production in Lesotho allthe way downstream to both consumers and investors in diamonds in Dubai andglobally. Together with Titanium Capital, I believe that we now have a strongand committed shareholder base in place for the long term. "This US$12m finance package is a strong vote of confidence in not only thehigh quality of our diamond assets, particularly our flagship Lemphane Project,but also Paragon's Board and management team and our ability to deliver on thestated objective to build a leading global diamond house. We believe thetrade-off between securing funding on the most appropriate terms for ourshareholders, and the pushing out of the commencement of Stage 1 production atour flagship Lemphane project into Q2 2015 is an acceptable one. A deep trustbetween shareholders and the Board of Directors cannot be built with wordsalone; actions count the most. We will continue to adhere to this and willupdate shareholders on our progress as we advance Lemphane towards production.These are great times for shareholders in Paragon, which I believe is stillsignificantly undervalued by the market. To all our existing shareholders,thank you for your support and the enthusiasm you share with me in regard toour prospects, I believe they couldn't look better right now." Lemphane Operations Update Design work has been concluded on the planned 75tph (0.5Mt/yr) process plantfor Stage 1 Production at Lemphane, metallurgical test work is being concluded,and long-lead-time item procurement has been undertaken ahead of fabrication ofthe main plant components. Long lead-time items include scrubbers, crushers,x-ray transmission recovery machines and water recovery thickeners. The Companyhas also finalized provisional tailings storage facilities (TSF) designs withits civil engineers, and the terms for contract mining for Stage 1. Siteclearance for the new plant has been undertaken, and civil constructionactivities are planned to commence in the coming weeks. Discussions are alsowell advanced with the national power company's main contractor, for access tothe privately funded open-access power line (presently nearing completion) forelectrical supply to the mine. Discussions have also been finalised with theproviders of camp accommodation and services, and security. Separately, the Company's geological consultants, MSA Group, have beeninstructed regarding ongoing work on the geological model, to be updated inlight of recent, positive drilling results, and concerning updating of thepresent scoping study to a full feasibility study over the course of Stage 1mining activity, which will be a work in progress. **ENDS** For further information please visit www.paragondiamonds.com or contact: Philip Falzon Sant Paragon Diamonds Limited +44 (0) 20 7182 1920Manduca Simon Retter Paragon Diamonds Limited +44 (0) 20 7182 1920 David Hignell/Gerry Northland Capital Partners +44 (0) 20 7382 1100Beaney Limited (Nominated Adviser) John Howes Northland Capital Partners +44 (0) 20 7382 1100 Limited (Sales and broking) Felicity Winkles St Brides Partners Limited +44 (0) 20 7236 1177 Frank Buhagiar St Brides Partners Limited +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 kimberlite to be developed in Lesotho. Among thestones recovered in the Company's 2013 bulk sampling programme were severallarge high value stones of up 8.9 carats in size and individual diamond valuesin excess of US$2,400/ct have been achieved, demonstrating the potential forLemphane to hold large and valuable diamonds. The first of a two stageproduction programme is currently expected to commence Q2 2015 which willfurther define the resource at Lemphane. As increased tonnages of kimberliteare processed the proportion of larger diamonds recovered will improve,increasing the average value of diamonds recovered at the project, as was thecase at Letšeng. Stage 1 production will cover a two year period during which approximately 1 Mtof kimberlite will be mined and processed out of the currently estimated 48.6Mtof kimberlite (to 350m depth) at the site, using a 75 tonne per hour processingplant. The Company is targeting 20,000 carats during Stage 1 production with anestimated minimum value of US$930 per carat that is expected to generaterevenues in excess of US$9m per annum. Cash flow will be reinvested to furtherdevelop Lemphane and complete a bankable feasibility study, a 3D geologicalmodel and a substantial inferred resource ahead of commencing the Stage 2production phase. Stage 2 will see production ramped up to 3Mt/year with peakproduction expected to hit 65,000 carats per year of high value diamonds. It is the intention of the Company to become a fully integrated diamond companymaximising the margins gained from being exposed from the mining to selling ofdiamonds.