PRG.L Regulatory News (PRG)

3 December 2012

Paragon Diamonds Limited

("Paragon" or the "Company")

(AIM: PRG)

Operational update

Paragon Diamonds Limited, the African focused diamond explorer and developer, is pleased to announce an operational update.

Highlights

·; Zambian licences restructured into 6 new gemstones licences expiring Oct 2014

·; Water permit obtained in Lesotho to enable continuous bulk sampling from Lemphane

·; Motete Resource Statement - 1.015 million carats at 65 carats per hundred tonnes (Inferred)

Zambia

The Company has been advised by the Mines Development Department of Zambia that the applications for six large-scale gemstone licences in the Mpika District in Central, Northern Province have been approved. The license areas are identical to the original applications, and comprise four licences in the eastern Luangwa (KapLamp) and two in the Mpika (Kabale) areas, now re-denominated as gemstone licenses. The terms of the license approval are for two years and an application for renewal can be applied for one year before expiry. In addition Paragon can establish and operate a plant to process gemstones within five years of the granting of the licenses.

The KapLamp area, which now comprises four gemstone licences, is known to host some 14 lamproites from which diamonds were recovered during preliminary testing by De Beers some 40-50 years ago. Whilst the known lamproites are immediate targets for additional investigation using modern techniques for sample acquisition, processing and evaluation, the surrounding region is also prospective for diamond-bearing intrusions. Accordingly, the exploration approach will be to undertake a regional assessment and exploration to prioritise targets for further investigation and testing.

Lesotho

Lemphane

Following on an application in August 2012, the Company has been granted a permit by the Basotho Deparment of Water Resources to extract water from the Malibamatso River. Water may be extracted at a maximum rate of 1,000m³/day, and will be used for the bulk sample processing at a potential rate of 250-350 tonnes per day. With complementary water recovery and recirculation techniques, this supply can be used to support additional bulk sampling at a rate of up to 1,000 tonnes/day.

The Company has already initiated construction of a 1.5 km high-pressure delivery pipeline to transfer water to the processing plant storage dam. The necessary pipes, water tanks, booster pumps, generator and ancillary equipment have been procured at a capital cost of US$ 160,000 and are on-site and being installed with an anticipated completion date of 12th December.

Bulk sampling at Lemphane is continuing as planned with circa 8,500 dry tonnes (equivalent to over 10,000 run-of-mine tonnes) processed to date of a planned 35,000 tonne run-of-mine bulk sample. The processing rate will be increased significantly when with the new pipeline becomes operational at year, with the completion of the initial bulk sample of circa 35,000 tonnes by the end of Q2-2013.

Motete

The Company has received a mineral resource statement on the Motete dyke project from its Consultants, The MSA Group. The mineral resource is classified as Inferred, and has been prepared by MSA according to the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Council guidelines for the reporting of diamond exploration results. The grade estimate is based on the modelling of total liberation (microdiamond) sampling data from 1,300+ kg of surface samples, and 108 kg of core samples, as well as 938 tonnes of surface bulk samples. The tonnage is estimated from surface mapping and some 920+m of delineation drilling, and the average diamond revenue is estimated from a single valuation of some 327 carats recovered from the surface bulk samples.

The report meets the previously modelled expectations on the dyke in terms of grade, and, following on the successful completion of delineation drilling in August, exceeds the original (in-house) tonnage estimates.

* the Company holds an 85% interest in the project with the remaining held by a local partner

The mineral resource has been prepared by Mr Johan Ferreira (Pr.Sci.Nat., MCIM), a world renowned specialist in the estimation of mineral resources for diamond projects. The total liberation / microdiamond samples were processed at The MSA Group's laboratory in Johannesburg. The laboratory is accredited with the global ISO/IEC 17025 certification.

The mineral resource estimate is 1.56 Mt above 2,300m amsl, and is open at depth. The recoverable grade is estimated at 65 cpht with a bottom screen cut-off of 1.18mm and an average diamond value of US$ 62/ct. The grade estimate would rise to 89 cpht at a bottom screen cut-off of 0.85 mm and the estimate for the average diamond value would then be US$ 51/ct.

The valuation data are based on a single valuation by Radiant Diamond Consulting in September 2012.

The small parcel size of 327 carats provided a robust modelling of the smaller sieve classes (+9 diamond sieve class and below) and an average model valuation of $40-$90 per carat. Predictably there was a paucity of larger stones, considered to represent statistical under-sampling of the larger stones within this size of parcel. The potential for higher values at higher stone sizes is substantiated by the presence of a single stone valued at $545/ct in the +11 DTC sieve class compared to a modelled average class value of $90/ct. Diamond value estimate is based on extrapolation of average diamond value for stones occurring in size classes above +11 sieve class. The 327 carat parcel of diamonds used for valuation does not contain sufficient stones in the larger size classes to provide high confidence in the value model and associated revenue estimate. The value model is therefore prudently conservative, but realistic on the basis of diamond values in the better populated smaller diamond size classes. 

Additional bulk sampling would be required to substantiate the presence of larger and higher value stones and additional parcel valuations will be obtained to substantiate the current values.

Scoping Study

The Company is in the process of finalising a scoping study, which will incorporate the above resource. The mineral resource is classified as Inferred, and has been prepared by MSA according to the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Council guidelines for the reporting of diamond exploration results. The Company will then evaluate the need, if any, to undertake additional drilling and/or sampling at Motete, in the context of its wider operational undertakings in Lesotho.

Sierra Leone

In light of the group's progress at its operations in Lesotho and the opportunities in Zambia, the Company has ceased and disposed of its small-scale alluvial operations in Sierra Leone for a nominal value. There will be an impairment in the financial statements for the year ended 31 December 2012 for the mine property and some of the equipment.

Paragon MD Stephen Grimmer commented: "The re-awarding of the Zambian exploration tenements as gemstone licences is entirely positive, and provides the company with an additional two years in which to conduct exploration, as well as a fast-track into production of any deposits discovered. In Lesotho the securing permanent large-scale water supply will not only accelerate the present bulk sampling programme, but serves as a future asset for any subsequent mining operation. The Motete resource meets all previous expectations in terms of grade and tonnage, and provides a valuable asset for future development under the appropriate economic circumstances."

Paragon Vice Chairman Martin Doyle commented: "The granting of the Zambian licenses, the divestment of the Sierra Leone operation and the installation a steady water supply at Lemphane ensures that Paragon can now focus its efforts and resources in determining the diamond potential of the Lemphane kimberlite as well as develop other projects within its portfolio in southern and central Africa"

In accordance with the AIM Rules, the information in this announcement has been reviewed by Stephen Grimmer PhD., MSc., a qualified geologist with 25 years' diamond exploration experience.

For further information:

Notes to editors

Paragon Diamonds is looking to rapidly develop producing and exploration diamond properties into a portfolio of high value assets located within Africa. To date it has secured a series assets which its exploration and development teams are working to progress. The core focus at present are the companies hard rock licences located in Lesotho, a major producing diamond region. The Projects include:

Lemphane Kimberlite project Lesotho (85%)

Lemphane is one of five known diamond bearing kimberlite pipes within Lesotho, located 5km from the Liqhobong project. The Environmental assessment plan and access routes and exploration camp have been completed.DMS plant constructed and bulk sampling commenced with 35,000 tonnes of ore stockpiled awaiting processing. Extended bulk sampling of a further 25 - 40,000 tonnes is possible once initial sample completed.

Motete Dyke exploration, Lesotho (85%)

Motete is a substantial kimberlite dyke (fissure system) in close proximity to the Lemphane project. Known to be diamondiferous and currently undergoing initial exploration. Initial micro diamond analysis results in 2012 indicated that an in-situ grade of up to 1 carat per tonne is likely. The licence was awarded in December 2011.

Kaplamp diamond hosting Lamproite', Zambia

Kaplamp is a large prospecting licence known to host 14 Lamproite pipes within a known diamondiferous region and with five high profile targets identified for initial evaluation. The area is highly prospective as De Beers recovered significant amount of stones in 60's and 70's but relinquished area as Lamproites were not yet recognised as viable. The Argyle Diamond Mine in Western Australia is the most renowned Lamproite hosted mine - in 1994 produced 39% of worlds diamond production.

Kopje kimberlite exploration, Botswana

This newly awarded prospecting licence covering 15 km sq in highly prospective area 35 km east of DeBeers' large producing Orapa Mine.

Mabuki, Tanzania

Located 81km south of Mwanza, Tanzania with good infrastructure nearby (roads, power, water, transport) the licence sits within a known Kimberlite Field. Artisanal activity occurs to the west of licence with diamond bearing gravels identified off the edge of the licence. The intention is to explore (detailed geophysics and sampling) and map-out, then establish drill targets and define a resource. Wardell Armstrong completed a competent persons report on Tanzania in September 2010.