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 an operational update relating to its operations in Sierra Leone, Lesotho and Zambia.

Highlights

·; Second diamond sale completed principally comprising smaller and industrial stones:

o 1,594 carats sold at an average value of US$335/ct generating US$534,500

·; Larger stones being retained in anticipation of higher future diamond prices

o 4 new special stones totalling 69 carats (of 30.5, 15.6, 11.5, 11.0 ct stones) independently valued at US$200,000

o Recent river diversion mining has yielded two of those special stones with combined weight of 45 carats which have been independently valued in excess of US$150,000

·; Positive exploration results from Lemphane kimberlite, Lesotho to date including:

o Micro diamond and mineral indicator testing has recovered 29 diamonds including 4 "macros"

o Numerous essential diamond indicator minerals (such as G9/10 garnets, and diamond inclusion chromites) recovered across the entire kimberlite

o Further exploration work planned at Lemphane in Q2 2011

Sierra Leone

Paragon Diamonds announces the completion of its second diamond sale comprising a mixture of small, near gem and industrial stones generating gross proceeds of US$534,500. The parcel comprised a total of 1,594 carats equating to an average value of US$335/ct. The larger and better quality stones have been retained pending further improvements in the international diamond market but have been independently valued at an average of US$2,750/ct.

The Company continues to stock pile gravels from the river diversion and hopes to proceed with an additional diamond sale pending market conditions.

Production

Since the beginning of the year, Paragon has been restructuring its mining operations at Konomo in order to optimise utilisation of its two mobile processing plants and to reduce operating costs. In addition, in conjunction with the peak of the dry season, Paragon has concentrated on river diversion construction as one can generally expect river channel ores to yield higher grades and diamond values. Work to date has focused on topographic depressions and channels previously identified by geophysics. Priority is being given to earthmoving and extraction (over haulage and treatment) on a 0.6Ha area which is expected to yield circa 10,000t of high grade ore.

Lesotho

Results from initial sampling

Approximately 625kg of material has been tested by SGS (South Africa) and MRA Diamond Consultants. Initial results from the micro diamond and indicator mineral test sampling show that from the three micro diamond samples, 29 diamonds including four "macros" (0.5-1mm) have been recovered. Diamonds indicate good preservation, indicative of favourable diamond transport conditions by the kimberlite.

The entire surface of the kimberlite has been sampled in a series of 28 pits, as have adjacent kimberlite dykes, confirming previous shape and size estimates. Numerous diamond indicator minerals (i.e. minerals closely associated with diamond-bearing mantle rocks) were recovered, including circa 1000+ garnets, 1000 chromites and 400 diopsides. Optical inspection shows that 67% of the garnets are purple/mauve G9/10 and ~20% eclogite. G10 and "E"-type garnets are highly indicative of the two main sources of diamond-bearing mantle rock. These grains will now be analysed by electron microprobe to determine their composition. High-chromium (G10's) and high-chromium / high madnesium chromites (DI-chromites) are strongly associated with diamond occurrence. IImenite was largely absent (from the samples which is often a positive feature. Ilmenite is often associated with high oxygen levels in the kimberlite which can lead to diamond destruction. Conversely, absence of Ilmenite, as here, favours diamond preservation.

Previous preliminary mineral chemistry analysis by IDC has shown a substantial proportion of the G9/G10 garnets recovered at that time to lie in the high-chromium (8-10% Cr) field, as do a substantial sub-population of the chromite in the diamond inclusion field. Both trends are recognized world-wide as an essential feature of the majority of economic kimberlites.

Exploration infrastructure

The Directors are pleased with the progress at the exploration site. Construction has commenced on a core storage facility which will hold up to 4,000 metres of core. This is scheduled to be recovered in mid 2011. Additional accommodation units for plant personnel are being built in anticipation of increased plant operations. A large excavator has recently arrived on site and is progressing well on constructing an internal road and an interim dam.

Two plant sites at the pipe have been levelled and prepared prior to the construction of the proposed sampling plants. A jig plant is in the process of being established on site. Additional conveyors and a larger scrubber will be sourced during March with the aim of having the unit fully operational during Q2 2011. The jig plant will be fed by stockpiled material from various sources on the pipe, aiming to recover diamonds for valuation purposes.

Joint venture agreement with Meso

The company has accelerated the payment of the second tranche of funds due to Meso in respect of its joint venture agreement announced on 9 December 2010. This is in order to continue with the progression of the exploration work. Of the second tranche of US $500,000 originally due to be settled in May 2011 US $200,000 was paid in February and the remaining funds will be paid in two instalments in March and April.

Application for an additional exploration licence

An application for an exploration licence covering 20km² area close to Lemphane has been submitted to the Ministry of Natural Resources, Lesotho. The prospective area covers a kimberlite which is the subject of many artisanal pits and trenches excavated in recent months by local diggers and which appears to host clear white coloured stones.

Zambia - Kaplamp Project

An environmental assessment study is currently being carried out by Geo Quest, a local consultancy. Following the conclusion of the environment assessment study in April, exploration will commence in early May. The exploration programme will include a stream sediment sampling programme to collect 50kg samples downstream of the 5 known olivine lamproites. Sampling will also be extended to cover the photo anomalies identified to the north of the known olivine-lamproite bodies. Follow up work will then be undertaken with a detailed 100m line spacing airborne magnetic survey followed by geological mapping of the main olivine - lamproite targets.

Commenting today, Chairman Frank Scolaro said: "I am pleased with the progress we are making at Lemphane. I look forward to the next stages of exploration at both Lemphane and the Kaplamp licence in the next quarter. With the ongoing recovery of the international diamond markets, we look forward to developing our alluvial and hard rock diamond assets rapidly."

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.