PRG.L Regulatory News (PRG)

Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 27 August 2014 Paragon Diamonds Limited ("Paragon Diamonds"or the "Company") Transfer of Convertible Loan Agreement Board Changes Paragon Diamonds Limited, the AIM quoted diamond development and productioncompany in Africa announces that Obtala Resources Limited ("Obtala"), theholder of £1,996,000 loan notes in the Company (the "Notes"), as well as 27.33%of the Company's issued share capital, has entered into an agreement to sellthe Notes (the "Agreement") to Titanium Capital Investments Limited ("TitaniumCapital") for a total consideration of £998,000. The Notes are not currently convertible into Ordinary Shares. Paragon hasentered into a new convertible loan note agreement with Obtala, in advance ofthe transfer of the Notes to Titanium Capital (the "Convertible Loan NoteAgreement"). As this will occur before Titanium Capital's acquisition of theNotes, and Obtala is a substantial shareholder in the Company, this constitutesa related party transaction under Rule 13 of the AIM Rules for Companies.Having consulted with its nominated adviser Sanlam Securities UK Limited("Sanlam"), the directors of the Company (all of whom are independent in thismatter) consider that the terms of the Convertible Loan Note Agreement are fairand reasonable insofar as shareholders of the Company are concerned. Paragon has also undertaken to Obtala that any future funding through the issueof new shares will be carried out a placing price of not less than 4 pence pershare until the time that the call option granted by Obtala to Titanium Capital(as detailed below) is exercised. This also constitutes a related partytransaction under Rule 13 of the AIM Rules, and having consulted with Sanlam,the directors of the Company consider that these terms are also fair andreasonable insofar as shareholders of the Company are concerned. Key points of the Agreement and the Convertible Loan Note Agreement: * The Notes are freely transferrable including to Titanium Capital * The holder of the Notes ("Loan Note Holder") is able to convert the Notes into ordinary shares of 1 pence each in the Company ("Ordinary Shares") at a price of 2.75 pence a share; * The Notes will have a five year term from today's date and shall not bear any interest; * The Loan Note Holder is entitled to nominate an Executive Chairman and Non-Executive Director to the Board of the Company. * Titanium Capital granted a call option to purchase 60,000,000 Ordinary Shares in the Company from Obtala at a price of 3.25 pence at any time up to 1 December 2014; * All shares from either the conversion of the convertible loan note or from the exercise of the call option are subject to a lock in for a period to 31 December 2014; and * As part of the negotiations Titanium Capital and Paragon intend to establish a sales and marketing company of which Paragon will hold an initial 25% interest, rising to a maximum of 50% once fully established. This entity will seek to buy and sell diamonds globally and its establishment is conditional upon the call option granted by Obtala being exercised by Titanium Capital. Further to the Agreement, the Company announces that it has appointed PhilipFalzon Sant Manduca (aged 56), as a representative of Titanium Capital, to theBoard as Executive Chairman with immediate effect. Martin Doyle, currentlyExecutive Chairman, will continue as a non-executive director. Philip Falzon Sant Manduca is Chief Executive Officer of Titanium Capital, aprivate equity investment group of companies, focused on executing strategichard asset investments. He has achieved capital gains for shareholders throughthe realisation of enterprise value growth in a number of asset managementbusinesses over the last 25 years, including Titanium Capital LLP, analternative investment manager, which by the time it was sold in 2007 to twoinvestment banks had close to US$1bn assets under management; Paragon's Chairman, Philip Falzon Sant Manduca said, "I am delighted to bejoining Paragon Diamonds at a time when production is on course to commence inthe near term at our 80% owned Lemphane kimberlite mine, which is located closeto the world class Letseng pipe in Lesotho. I am assuming the responsibility toprocure for Paragon Diamonds its funding needs in both Stage 1, and within twoyears, Stage 2 of its development of the Lemphane mine, whilst concurrentlyexploring further options, including the Company's assets in Botswana andZambia, that can accelerate Paragon's revenue profile. "I am extremely optimistic about the diamond sector as a hard asset currencyalternative to paper money which is witnessing a severe debasement in mostmajor countries. Diamonds as a currency are mobile, lack storage costs, haveexcellent demand/supply conditions for additional price appreciation in thefuture, and I believe will increase in value whether the major central bankscontinue with their multi-year monetary policies of paper currency debasementand/or commence with a period of high inflation and trade protectionism. Thisis in addition to the grave deterioration we are witnessing in the currentgeopolitical environment. "Our vision over the next three years is to develop Paragon into a verticallyintegrated diamond house, with established production from majority ownedmines, starting with Lemphane of which we own 80% in conjunction with theKingdom of Lesotho holding the remaining 20%. Through related business venturesand joint ventures in diamond mining, trading, manufacturing and sales,investors will be able to participate in down-stream commercialisationactivities `from the mine to the high street'. Laterally, via fractionalownership through collateralised investment funds, investors will benefit fromthe entire value chain inherent to diamond production and sales. I am committedto ensuring that shareholders benefit substantially from Paragon's futuresuccess. To this end, I will seek to ensure that management and shareholderswill be aligned through ownership of the Company." Paragon's Managing Director, Dr Stephen Grimmer, said "Philip is joiningParagon at an exciting time as we look to bring Lemphane into production.Philip's experience in financial markets and extensive network of contactswithin the financial sector and amongst high net worth individuals will proveinvaluable, as we focus on ensuring Paragon is best placed to maximise thebenefits from the growing stature of diamonds among the global investmentcommunity for our shareholders. "I would like to take this opportunity to thank Martin for his contribution andsupport over the years in his role as Chairman. Martin has been instrumental inacquiring and developing our portfolio of highly prospective diamond projectsin Africa, as a result of which we are in a strong position to deliver on ourobjectives and transform Paragon into a cash generative diamond company inAfrica." Obtala Resources Chairman Francesco Scolaro said, "We continue to besubstantial and supportive shareholders of Paragon and look forward to the newimpetus from the team led by Philip Manduca and the potential funding his groupmay be able to deliver and transforming Paragon to a diamond producer." Disclosures under Schedule 2 of the AIM Rules Philip Falzon Sant Manduca is currently interested in 700,000 Ordinary Shares(equal to approximately 0.21% of the issued share capital), via a pensionscheme, and is or has been a director of the following companies during theprevious five years: Current Directorships Directorships held in the last five years Titanium Capital Investments Ltd The ECU Group Plc Radiant Diamond Trading DMCC Sporting Balance Ltd Titanium Sports Group Ltd. There are no other matters, which are required to be announced with regard tothe appointments under paragraph (g) of Schedule 2 of the AIM Rules. **ENDS** For further information please visit www.paragondiamonds.com or contact: Philip Falzon Sant Paragon Diamonds Limited +44 (0) 20 7099 1940Manduca Simon Retter Paragon Diamonds Limited +44 (0) 20 7099 1940 Lindsay Mair Sanlam Securities UK +44 (0) 20 7628 2200 James Thomas 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 currently expected to commencelate 2014 (subject to financing) which will further define the resource atLemphane. As increased tonnages of kimberlite are processed the proportion oflarger diamonds recovered will improve, increasing the average value ofdiamonds recovered at the project, as was the case 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 companymaximizing the margins gained from being exposed from the mining to selling ofdiamonds.