PRG.L Regulatory News (PRG)

Paragon Diamonds Limited

("Paragon" or the "Company")

(AIM: PRG)

Paragon Diamonds, the AIM quoted, African focused diamond production and development company, today announces its unaudited interim results for the six months to 30 June 2011.

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

Highlights

·; Cash balance up £1.6 million to £3.6 million

·; Net assets up £8.9 million to £37.8 million on the back of acquisition of International Diamond Consultants and fundraising

Chairman's Statement: I am pleased to present the first interim financial statements for Paragon Diamonds Limited (the "Company" or the "Group") for the six month period to 30 June 2011 and report on developments of the Group.

The acquisition of a further 54.2 per cent of International Diamond Consultants has strengthened the Groups' asset base considerably and transformed it into a hard rock diamond exploration and development company. The acquisition increases the Group's interest to 98.5 per cent and gives the Group direct interests in the Lemphane Kimberlite in Lesotho, the Kabale River and Kaplamp licences in Zambia as well as the recently awarded Kopje licence in Botswana. These combined with the Group's existing interest in Tanzania and alluvial operations in Sierra Leone give the Group a diversified asset base on which to operate. 

Lemphane - Lesotho

The Lemphane licence covers a known 6Ha surface area kimberlite in the world renowned diamondiferous region of the Kingdom of Lesotho. The Group has undertaken an immediate strategic review of the work underway at Lemphane and commenced a bulk sampling programme which will initially mine 25,000 tonnes of kimberlite to assess the grade and value of stones contained within the pipe. A bulk sampling plant has been assembled on site and stockpiles created ready for processing. It is anticipated that the initial results of the bulk sampling will be available around the end of the year.

The Company has also lodged a full application for recently identified area in Lesotho, which has been previously mined on an artisanal level and is known to be diamondiferous.

Kopje - Botswana (awarded post period end)

In July 2011 the Group's Botswana subsidiary was awarded a new exploration licence covering 15 km2 and is located circa 35 km due east of the world-class Orapa Kimberlite mine and north of the Francistown road in the East Orapa Kimberlite Field. The 15 km2 licence area is also adjacent, to the east, of Firestone's BK14 kimberlite project.

The licence area lies within the large regional (40 x 30 km) "KI" anomaly which was established by DeBeers in the 1990's and of which the "Orapa-type" kimberlites of the BK series are a part. The eastern part of the "KI" anomaly has been held by DeBeers and Petra Diamonds for a number of years, and holds the potential of a new kimberlite field.

Sierra Leone Hard Rock

Our operations in Sierra Leone in the first half of 2011 generated revenue of £0.7 million on the sale of two parcels totalling 3,629 carats of diamonds. The average value generated was $291 / ct including 114 carats of "special" stones which generated $191,500 in total. A recent deterioration in the fiscal regulatory environment in Sierra Leone, which involves large increases in the annual cost of holding title, has prompted the Board to initiate a review of its operating strategy.

Financial Results

Excluding impairment and depreciation the Group reported a loss of £1.3 million for the six months period to 30 June 2011. The Group reported a one off impairment charge of £4.4million relating to impact of the deterioration of the fiscal operating environment on the Group's assets in Sierra Leone. The net assets of Group have increased 30% to £37.5 million due to the acquisition of a further £12.5 million interest in International Diamond Consultants and the completion of a fundraising of £2.9 million in January 2011. This was done by way of issuing 8.5 million new shares at a price of 34 pence per share. As at 30 June 2011 the Group held £3.7 million of cash.

The Board

On 21 June 2011 Francesco Scolaro stepped down from the Board of Directors in order to focus on other projects. I would like to take this opportunity to thank him for his valuable contribution to the Company in its early stages and for his continued support as a major shareholder.

Outlook

I am optimistic about what the rest of the year will bring, at this very exciting time for the Company. I look forward to the initial results from our bulk sampling at the newly acquired Lemphane Kimberlite, expected by the end of the year as well as initial grab sampling at the newly awarded Kopje licence. It is a great time to be evaluating new hard rock diamond projects with rough diamond prices strengthening on the back of growing investment demand in these turbulent economic times.

Luc Huyghebaert

Chairman

26 September 2011

The loss arises from the Group's continuing operations.

Comparatives for the period since incorporation on 27 April 2010 to 30 June 2010 have not been included as the Company was dormant during this period. 

Comparatives for the period since incorporation on 27 April 2010 to 30 June 2010 have not been included as the Company was dormant during this period.

Approved by the board and authorised for issue on 26 September 2011

Luc Huyghebaert Simon Retter

Executive Chairman Finance Director

Comparatives for the period since incorporation on 27 April 2010 to 30 June 2010 have not been included as the Company was dormant during this period.

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 2011. These include audited comparatives for the period to 31 December 2010.

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 period ended 31 December 2010.

3. SEGMENTAL REPORTING

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

The Group's primary reporting segments are geographical segments, being Sierra Leone, Tanzania and the recently acquired Southern 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 Diamond Consultants Limited (refer note 7)

4. LOSS PER SHARE

Basic loss per share is based on the net loss for the period of £6,323,000 attributable to equity holders of the parent divided by the weighted average number of ordinary shares in issue during the period of 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.

Purchase of mining licences

International Diamond consultants

During the period the Group acquired a further 54.2% interest in international diamond consultants. The consideration was satisfied by the issue of 36,994,235 new ordinary shares in the Company at a price of 34 pence per share representing £12,578,040 (refer note 7 for further details).

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 2011.

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 decided to impair the mining asset in Sierra Leone by 25% to represent the anticipated dilution of the Groups interest in the licences when negotiating the renewal of the licences.

7. Acquisition of subsidiary undertaking

On 17 May 2011 Paragon Diamonds completed the acquisition of a further 54.2% interest in International Diamond Consultants Limited bringing the total ownership to 98.5%. The initial 44.3% of IDC was purchased in 2010 and accounted for as an investment in associate as at 31 December 2010. Consideration for the 54.2% was settled by way of issuing 35,670,705 new ordinary shares in the Company at the market price of 34 pence per share equating to £12.1 million. In addition 1,323,530 new ordinary shares in the Company were issued to the vendors of IDC at a market price of 34 pence per share to fully settle outstanding debts of approximately £450,000 owed by IDC to its previous owners. A total staggered consideration of USD700,000 was also paid to the vendors under the terms of a joint venture agreement, this has been treated as cash consideration.

8. investmentS

A summary of investments is as follows:

9. SHARE CAPITAL

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

On 27 January 2011 the Company issued 8,500,000 new ordinary shares in the Company at a price of 34 pence per share raising gross proceeds of £2,890,000

On 17 May 2011 the Company issued 36,994,235 new ordinary shares in the Company at a price of 34 pence per share as consideration for the acquisition of International Diamond Consultants (refer note 7).

10. SHARE PREMIUM ACCOUNT