PRG.L Regulatory News (PRG)

Paragon Diamonds Limited

("Paragon" or the "Company")

(AIM: PRG)

Conditional agreement signed which will increase Paragon's interest in International Diamond Consultants Limited ("IDC") to 98.5%

Highlights

o Paragon has agreed to acquire a further 54.2% of IDC taking its total interest to 98.5%

o Consideration of £12.1 million to be satisfied by the issue of 35,670,705 new ordinary shares in the Company at a price of 34 pence per share.

o IDC core projects: Lemphane kimberlite project, Kaplamp lamproite project and Kabale kimberlite project.

o New strategy being implemented prioritising the rapid exploration and development of the Lemphane and Kaplamp projects.

Paragon Diamonds Limited, the African focused diamond development and production company, today announces that it has signed a conditional agreement to acquire a further 54.2% of the issued share capital of International Diamond Consultants Limited from Dragon Equities Limited, and private overseas investors (the "Acquisition"). IDC has interests in certain mining exploration projects including the Lemphane kimberlite project in Lesotho, the KapLamp lamproite project in Zambia and the Kabale licence, a diamond kimberlite exploration project also in Zambia.

Details of the Acquisition

Paragon has signed a conditional agreement to acquire 22,009,000 shares in IDC (representing 54.2% of the issued share capital of IDC) at a value of $0.88 cents per share from Dragon Equities Limited (24.6%) and private overseas investors (29.6%) (collectively the "Vendors"). Dragon Equities is a subsidiary of Dragon Group, a London based private finance and management company with interests in international mining companies.

The consideration is being satisfied by the issue of 35,670,705 new ordinary shares in the Company at a price of34 pence per share, equating to an aggregate consideration of £12,128,040.

Completion of the Acquisition is conditional on Paragon obtaining authority at its upcoming AGM on 12 May 2011 to allot the relevant shares. Subject to the appropriate resolution being passed, Paragon will hold a 98.5% interest in IDC with the remaining 1.5% held by Obtala Services Limited, a wholly owned subsidiary of Obtala Resources Ltd.

Paragon has obtained certain warranties in favour of the Company relating to IDC, its subsidiaries and its licences from the Vendors .

Settlement of IDC debt

Paragon has agreed to issue 1,323,530 new ordinary shares in the Company at a price of 34 pence per share to fully settle the outstanding debt of approximately £450,000 owed by IDC to its previous controlling party, Dragon Equities.

The completion of this debt settlement is conditional on the completion of the Acquisition.

Issue of options

The Company has agreed to issue a total of 3,000,000 options over the ordinary share capital of the Company to certain previous employees of IDC with an exercise price of 34 pence per share.

The option vest after one year and are exercisable at any time between the vesting date and their expiry, being five years after completion. The issue of the options are conditional on the completion of the Acquisition.

Issue of Equity

Assuming the completion of the Acquisition, 36,994,235 new ordinary shares in Paragon will be issued to the following parties:

* All these companies are ultimately beneficially owned by The Vazon Foundation which is, a private family foundation governed under the laws of Liechtenstein. The ultimate beneficial holder of these shares is Mrs Maria Romero.

Under the terms of the Sale and Purchase Agreement, the Vendors have agreed not to dispose of their shareholding in the Company for a period of one year from the date of completion and after this for a further one year under orderly market principles. Following the issue of the ordinary shares in Paragon, there will be 188,177,054 ordinary shares in issue in Paragon.

IDC - Operational update

Following the Acquisition, management of IDC will be taken over by Paragon with immediate effect and a revised strategy implemented over the coming months. Set out below is a table detailing the various licences that IDC owns:

Licences

IDC has assets of £960,250 and made no profit or loss in the year ended 31 December 2010.

Lesotho - Lemphane kimberlite project

Following construction of an access road of circa 5km to the project site at an elevation of 2,650m and establishment of camp infrastructure, a geomagnetic survey and pitting program delineated the surface of the circa 6 hectare kimberlite. Processing of some 30 pit samples yielded several thousand kimberlite indicator mineral grains, including diagnostic mantle-derived garnets, diopsides and chromites. It is now intended that these mineral grains be analysed to determine more accurately the diamond-bearing potential of this known-diamondiferous kimberlite. With the coming winter and dry season, it is intended to mine and extract an initial 5-10,000 tonne sample from a series of trenches across the kimberlite. These samples will be processed in a bulk sampling plant currently being shipped to site. Prior to the plant being commissioned on site, and with the coming dry season (Austral winter) in June/July the samples will be mined, crushed, transported, and stockpiled, and the necessary site infrastructure, including a slimes disposal and water supply dam, will be constructed.

The objective is to complete this initial bulk sample, and to determine a provisional grade and diamond value for the Lemphane kimberlite by the end of 2011. Ongoing works for 2012 will, to a large degree, be determined by the outcome of this work, but is expected to include further large-scale sampling and a drilling programme to determine the extent of the kimberlite at depth.

Zambia - KapLamp

In Zambia, work will concentrate on the circa 900km2 15033-HQ prospecting licence on the margins of the Luangwa Valley in eastern Zambia. Following the grant of this licence in late 2010, we will now commence beaconing the licence area in the coming weeks, and will commission the required environmental survey prior to any exploration activities. Planned work for the rest of 2011 includes re-locating up to nine of the previously identified Lamproite pipes, including the circa 45 hectare diamond-bearing P2 Lamproite complex previously identified by DeBeers in the 1970's. At the time of discovery, Lamproites were not recognized as potentially economic diamond sources. With the subsequent establishment of the Argyle and Ellendale Lamproite diamond mines in Australia, these targets now warrant serious re-evaluation. Following aerial photograph and/or satellite interpretation, a series of ground magnetic surveys to define the Lamproite outlines and a shallow auger drilling programme to acquire mineralogical samples will be undertaken. Mineral chemistry will be used to determine the diamond-bearing potential of the main targets. If warranted, initial small-scale bulk sampling from several pits will be undertaken to obtain provisional grade and diamond value estimates towards the end of 2011.

Commenting today, Chairman Frank Scolaro said: "The acquisition of this further significant interest of IDC is transformational for the shareholders of Paragon. Both Lemphane kimberlite and the lamproites in Zambia offer significant growth potential, both in production of quality stones and increase in revenue stream for the company."

In accordance with the AIM Rules, the information in this announcement has been reviewed by Stephen Grimmer PhD, a qualified geologist with over 20 years' diamond exploration experience.