PRG.L Regulatory News (PRG)

19 September 2012

Paragon Diamonds Limited

("Paragon" or the "Company")

(AIM: PRG)

Interim accounts for the six months to 30 June 2012

Paragon Diamonds, the AIM quoted, African focused diamond production and development company, today announces its unaudited interim results for the six month ending 30 June 2012.

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

For further information:

Chairman's statement

I am pleased to present the interim financial statements for Paragon Diamonds Limited (the "Company" or the "Group") for the six month period to 30 June 2012 and report on the developments of the Group during what has been an exciting period. The Group has focussed on continuing the bulk sampling programme at its flagship Lemphane Kimberlite in Lesotho whilst simultaneously conducting a rapid exploration programme at its newly awarded Motete Dyke Licence in close proximity to Lemphane.

Lemphane - Lesotho

The bulk sampling on the Lemphane Kimberlite has been progressed steadily over the period with only a temporary break whilst the plant was reconfigured to process the sample from the Motete Dyke. The sampling programme at Lemphane has restarted again since conclusion of the Motete activities and will continue over the coming weeks and months. A total of over 4,700 tonnes of kimberlite has been processed to date and a grade of 2.20 cpht recovered. Seven diamonds ranging from 2.0-6.3 carats and twenty two diamonds greater than one carat in weight have been recovered. A provisional diamond size distribution indicates that 56% of carats are present in stones of 1 carat or greater, 34% of carats are present in stones of 2 carats or greater and 14% of carats are in stones of 5 carats or greater. The results at Lemphane are significant as they correlate closely with the results seen at other prominent Lesotho kimberlites at the same exploration-development stage. Relatively low grades but exceptionally large diamond sizes are encountered at both Letšeng-la-Terae and Mothae diamond mines, where the overall value is highly influenced by the presence of large, high value stones.

Motete - Lesotho

Since the Motete Dyke licence was awarded in December 2011, the Group has embarked on a rapid exploration programme to evaluate the property. The Group has undertaken a large microdiamond sampling programme; predicting a modelled grade of 90 cpht at the smallest screen size. In subsequent bulk sampling a recovered grade of 55 cpht was observed using the existing Lemphane plant that was not configured to recover the numerous smaller stones. The tailings are being sent to a laboratory to confirm the presence of smaller stones which will ultimately be taken in to consideration when determining the proposed make up of the final plant. Drilling has been undertaken which confirms the width of the dyke to be consistently in the order of 1.4m wide at depth which will greatly facilitate underground mining. It also confirmed the presence of approximately 1.1 Mt of kimberlite with the potential for more should further drilling be undertaken. A scoping study is underway which is expected to be completed over the coming weeks along with a maiden resource statement for the Dyke. The Company has submitted four new applications for exploration licences covering 100km2 over what it deems to be highly prospective ground surrounding the existing Motete licence. A memorandum of understanding has been agreed for the 15% shareholder of the Lesotho subsidiaries to provide up to $10 million to project finance the Dyke, which is expected to be sufficient to bring it into production. The mine plan for the Dyke involves underground mining with the majority of the kimberlite to be mined by overhead tunnelling.

Sierra Leone

The Group's operations in Sierra Leone have remained on care and maintenance since August 2011, with a minimal cost base in order to protect the assets and the few remaining staff in country.

Financial Results

The Group reported a loss of £1.4 million for the period (2011restated: £2.2 million) which comprised mainly administration costs and depreciation. Excluding depreciation the Group reported a £1.1 million loss for the first six months of the year. The net assets of the Group were £35.8 million at the period end (2011 restated: £45.5 million) which included £3.5 million attributable to minority interest (2011: £3.8 million). The exploration portfolio is £41.3 million (2011 restated: £38.9 million) and fixed assets comprising the plant and equipment and the mine in Sierra Leone £4.9 million (2011:£15.0 million). The Group completed a fund raising of £1.7 million during the period by issuing 5,948,275 new ordinary shares at a price of 29 pence per share. The Group completed the acquisition of the remaining 1.5% interest in International Diamond Consultants during the period and issued 970,588 new ordinary shares as consideration. Paragon held cash balances of £1.6 million at the period end (2011: £3.7 million). The capital expenditure on the dyke project will not commence until the scoping study, resource statement, mining licence and $10 million project financing are all in place.

Outlook

The Company is at an exciting point in its development with its maiden resource statement and scoping study due at Motete in the near future. The continuing results from the Lemphane bulk sampling programme are also important to the Group and I look forward to reporting the progress made in these areas over the coming months.

Francesco Scolaro

Chairman

18 September 2012

Condensed consolidated statement of comprehensive income

The loss arises from the Group's continuing operations.

Condensed consolidated statement of changes in equity

Condensed consolidated statement of financial position

Approved by the board and authorised for issue on 18 September 2012

Francesco Scolaro Simon Retter

Executive Chairman Finance Director

Condensed consolidated statement of cash flows

Notes to the interim financial statements

1. BASIS OF PREPARATION

The interim financial statements of Paragon Diamonds Limited are unaudited condensed consolidated financial statements for the six months to 30 June 2012. These include unaudited comparatives for the six month period to 30 June 2011 and those audited for the year ended 31 December 2011. The prior year comparatives for the six month period to 30 June 2011 have been restated to reflect subsequent changes to the fair value of assets acquired and associated gain on acquisition of the subsidiary that was completed in May 2011.

2. significant accounting policies

The condensed consolidated financial statements have been prepared under the historic cost convention. The accounting policies adopted are consistent with those found in the preparation of the Group's annual financial statements for the year ended 31 December 2011.

3. SEGMENTAL REPORTING

The operations of the Group are located in Lesotho, Zambia, Botswana, Sierra Leone and Tanzania. Head office costs are incurred in Guernsey.

The Group's primary reporting segments are geographical segments, being West Africa and Southern and East Africa.

The following tables show the segment analysis of the Group's loss before tax for the period, net assets and other segment information:

* includes intangible assets acquired as part of the acquisition of International Diamonds Consultants.

4. LOSS PER SHARE

Basic loss per share is based on the net loss for the period of £1,352,000 (2011: £2,197,000) attributable to equity holders of the parent divided by the weighted average number of ordinary shares in issue during the period of 193,462,871 (2011: 158,925,808).

5. INTANGIBLE EXPLORATION AND EVALUATION ASSETS

The above value of intangible assets represents the cash and non-cash consideration paid by the Group at the time of acquisition.

Impairment

The Directors have considered the following factors when undertaking their impairment review of the intangible assets:

a) Geology and lithology on each licence as outlined in the most recent CPRs (independent Competent Person's Reports)

b) The expected useful lives of the licenses and the ability to retain the license interests at renewal

c) Comparable information for large mining and exploration companies in the vicinity of each of the licences

d) History of exploration success in the regions being explored

e) Local infrastructure

f) Climatic and logistical issues

g) Geopolitical environment

After considering these factors, the Directors have not made any impairment for the period to 30 June 2012.

6. PROPERTY, plant and equipment

Impairment

The Directors have considered the following factors when undertaking their impairment review of the tangible mining assets:

a) Geology and lithology on each licence as outlined in the most recent CPRs (independent Competent Person's Reports)

b) The expected useful lives of the licenses and the ability to retain the license interests at renewal

c) Comparable information for large mining and exploration companies in the vicinity of each of the licences

d) History of exploration success in the regions being explored

e) Local infrastructure

f) Climatic and logistical issues

g) Geopolitical environment

After considering these factors, the Directors have not made any impairment for the period to 30 June 2012.

7. SHARE CAPITAL

Fully paid ordinary shares carry one vote per share and carry rights to dividends.

On 25 January 2012 the Company issued 5,948,275 new ordinary shares in the Company at a price of 29 pence per share raising gross proceeds of £1,725,000.

On 25 April 2012 the Company issued 970,588 new ordinary shares in the Company at a price of 34 pence per share as consideration for the acquisition of the remaining interest in International Diamond Consultants.

8. SHARE PREMIUM ACCOUNT