PRG.L Regulatory News (PRG)

29 May 2013 Paragon Diamonds Limited ("Paragon", the "Company" or the "Group") (AIM: PRG)

Unaudited preliminary results for the year ended 31 December 2012

I am pleased to report on the progress of Paragon Diamonds Limited, anexploration and development company of primary diamond deposits in southern andcentral Africa.

It has been a productive year for Paragon with several key objectives havingbeing achieved:

* establishment of a 1 million carat resource on the Motete Dyke project; * the resumption of bulk sample processing at the Lemphane Kimberlite project; * initiation of delineation drilling on Lemphane;

* individual stone valuations over $2,300 per carat from a 112 carat parcel

from Lemphane; * installation and commissioning of a steady water supply at Lemphane; * submission of a Mining Licence Application for Lemphane; and

* disposal of the West African alluvial assets to focus Company resources on

southern African projects, particularly in Lesotho.

Lemphane - Lesotho

Lemphane is one of five major diamondiferous kimberlite pipes in Lesotho andParagon is currently undertaking an extensive bulk sampling programme with thestrategic objective of establishing an inferred resource by Q1/Q2 2014. Lesotho is famous for its large and exceptionally high quality diamonds, whichfetch some of the highest values per carat of any diamonds in the world. TheLemphane Kimberlite at an early stage in the resource evaluation has produceddiamonds with individual values over $2,300 per carat. On completion of the resource development work on the Motete Dyke as discussedbelow, processing of the 30,000 tonnes surface bulk was resumed on Lemphane inSeptember 2012. Of significance was the establishment of a stable and continuous water supplyafter the Company successfully applied for a permit to extract water from thenearby Malibamatso River. This new water supply was fully commissioned inFebruary 2013 and will guarantee continuous operations for the plant withconcomitant impact of processing quality and completion of the 35,000 tonnessurface bulk sample expected by the end of Q3 2013. In line with our intent to develop and bring the Lemphane Kimberlite intoproduction as soon as possible, a Mining Licence Application ("MLA") wassubmitted to the Lesotho government in February 2013. Trial mining to processan additional 100,000 tonnes is scheduled to commence in Q4 2013 on approval ofthe MLA. It is anticipated that some 2,000-3,000 carats will be produced duringtrial mining with a potential value of $2m-$5m. The trial mining programme willbe informed by the current delineation drilling program which is intended todevelop a detailed internal geological model which will be correlated andcombined with the mapping of surface geology. Trial mining will target thevarious kimberlite facies to be identified during the drilling program andsurface mapping so as to estimate the diamond revenue per geological facies.The main objective is to determine an inferred resource by Q1/Q2 2014. I have been highly impressed by the efforts of Paragon's team on the ground.They have managed to achieve much in a short period and in a very economicalmanner. Motete - Lesotho The focus of the Company's 85% subsidiary Botle Diamonds during 2012 was toevaluate and develop a resource at the Motete Dyke. A resource statement wasreleased by the consultants MSA Group of South Africa in December 2012. TheMineral Resource was prepared by Johann Ferriera (Pr.Sci.Nat), a world renownedspecialist in the estimation of Mineral Resources for diamond projects, and wasbased on data generated from both a micro-diamond and bulk sample programexecuted by Botle Diamonds personnel during 2012. The resource statement defined a net attributable resource of 1.33Mt at a gradeof 65cpht for net contained caratage of 0.86Mct on a cut-off of 1.18mm. Theaverage diamond value was $62/carat with values of $500 per carat noted in the+7 DTC sieve class. The next step in the Dyke resource evaluation anddevelopment is to collect additional bulk samples of kimberlite to confirm thehigher $/ct values in the larger diamond sizes. Botle Diamonds has also applied for three further prospecting licences with acombined area of 74 km² on adjacent ground, which we deem to be highlyprospective for kimberlite dykes. Future discoveries on the applications willcontribute additional tonnage and life of mine to the current establishedresource.

Konoma - Sierra Leone

On 31 August 2011, the Company announced it was placing its Konoma AlluvialDiamond Mine on care and maintenance due to deterioration in the fiscalregulatory environment in Sierra Leone. Due to this and ongoing uncertainty inthe re-interpretation of current mining legislation by the Ministry of Mines ofSierra Leone, the operations were divested to a consortium of local managementin November 2012 and the Company's resources focused on the Lesotho operations. Financial results The Group generated a loss after tax of £5,068,000 during the year (2011: lossof £14,044,000) which included a £3,954,000 disposal in respect of the SierraLeone operations (2011: impairment of £14,704,000). This disposal ispredominantly a non-cash expense and represents the reduction in value of theSierra Leone asset held on the balance sheet. Excluding the disposal in SierraLeone, the Group generated a loss for the year of £1,114,000 (2011: profit of £660,000) mainly due to administration costs which totalled £1,073,000.Continued tight control on costs saw the administration costs reduce by 32%against the prior year.

The Group held £492,000 of cash as at 31 December 2012 (2011: £1,238,000).

The Group has net equity of £30.4 million, (2011: £35.6 million) and intangibleexploration assets are carried at £41.2 million (2011: £41.1 million).

Group borrowings totalled £2.6 million at 31 December 2012 (2011: £2.0million).

Funding

The Company announced separately this morning that it has conditionally raised£1.55 million (before expenses) by way of a subscription by existing and newshareholders, with the funds to be focused on Lemphane. This fundraising willsupplement the Group's existing loan facility with Obtala Resources Ltd, whichhas approximately £200,000 remaining undrawn as at 28 May 2013.

The Board

I replaced Francesco Scolaro as Chairman on 19 December 2012. Mr Scolaroremains a key and supportive shareholder.

Outlook

With the strategic objective of establishing an inferred resource at Lemphaneby the end of Q1/Q2 2014, the rest of 2013 will be focused on completion of the30,000 tonnes surface bulk sample, the generation of a detailed geologicalmodel by drilling and the initiation of trial mining. The trial mining willcontinue beyond the end of 2013, guided by the evolving geological model andexpected to generate some 2,000-3,000 carats. This parcel of diamonds willprovide a reliable insight into the prevailing diamond values at Lemphane and Ilook forward to being able to report on the recovery of further large highvalue diamonds that Lesotho is renowned for producing.

Finally I would like to thank our staff, particularly those "on the ground" inLesotho for their very hard work during the period.

Martin Doyle Executive Chairman For further information: Paragon Diamonds Limited +44 (0) 20 7099 1940 Martin Doyle - Chairman Simon Retter - Finance Director www.paragondiamonds.com Sanlam Securities UK (Nominated Adviser & +44 (0) 20 7628 2200 Broker) Lindsay Mair Catherine Miles

Consolidated statement of comprehensive income

Notes Year Year ended ended 2012 2011 Continuing operations £000 £000 Revenue - 731 Operating expenses - (1,610) OPERATING LOSS - (879) Administration costs (1,073) (1,571) Depreciation - (1,029) Impairment - (14,704) Gain on acquisition of subsidiary - 4,186 Finance income - 4 Finance costs (41) (51) LOSS BEFORE TAXATION (1,114) (14,044) Taxation - - LOSS FOR THE year from continuing operations (1,114) (14,044) Discontinued operations Loss for the year from discontinued operations (3,954) - LOSS FOR THE YEAR (5,068) (14,044) Attributable to: Owners of the parent (4,881) (13,950) Non-controlling interests (187) (94) (5,068) (14,044) Other comprehensive income: Exchange differences on translation of (2,033) 1,184 foreign operations TOTAL COMPREHENSIVE INCOME FOR THE YEAR (7,101) (12,860) Attributable to: Owners of the parent (6,765) (12,945) Non-controlling interests (336) 85 (7,101) (12,860) LOSS PER SHARE From continuing and discontinuing operations Basic and diluted (pence) (2.61) (8.11) From continuing operations Basic and diluted (pence) (0.57) 1.48

Consolidated statement of changes in equity

Share Share Foreign Share Retained Total

Non-controlling Total

capital premium exchange based deficit interests attributable reserve payment to owners of reserve parent £000 £000 £000 £000 £000 £000 £000 £000 At 1 JANUARY 2011 1,427 27,955 646 20 (1,138) 28,910 - 28,910 Loss for the year - - - - (13,950) (13,950) (94) (14,044) Exchange differences - - 1,005 - - 1,005 179 1,184on translation offoreign operations Total comprehensive - - 1,005 - (13,950) (12,945) 85 (12,860)income for the year Issue of shares 455 15,014 - - - 15,469 - 15,469 Expenses on issue of - (25) - - - (25) - (25)shares Share based payment - - - 296 - 296 - 296 Arising on - - - - - - 3,782 3,782acquisition ofsubsidiary

At 31 December 2011 1,882 42,944 1,651 316 (15,088) 31,705

3,867 35,572 Loss for the year - - - - (4,881) (4,881) (187) (5,068) Exchange differences - - (1,882) - - (1,882) (149) (2,031)on translation offoreign operations Total comprehensive - - (1,882) - (4,881) (6,763) (336) (7,099)income for the year Issue of shares 69 1,938 - - - 2,007 - 2,007 Share based payment - - - 181 - 181 - 181 Transfer of share - - - (13) 13 - - -based payment charge Arising on - - - - 81 81 (354) (273)acquisition ofNon-controllinginterest

At 31 December 2012 1,951 44,882 (231) 484 (19,875) 27,211

3,177 30,388

Consolidated statement of financial position

2012 2011 Notes £000 £000 ASSETS Non-current assets Intangible exploration and evaluation 41,151 41,147assets Property, plant and equipment 769 5,337 Total non-current assets 41,920 46,484 Current assets Trade and other receivables 177 30 Inventory - 67 Cash and cash equivalents 492 1,238 Total current assets 669 1,335 TOTAL ASSETS 42,589 47,819 LIABILITIES Current liabilities Trade and other payables (310) (180) TOTAL CURRENT LIABILITIES (310) (180) NON-CURRENT LIABILITIES Site restoration provision (148) (469) Deferred tax liability (9,127) (9,550) Loans (2,616) (2,048) Total non-current liabilities (11,891) (12,067) TOTAL LIABILITIES (12,201) (12,247) NET ASSETS 30,388 35,572 EQUITY attributable to owners of the parent Share capital 1,951 1,882 Share premium 44,882 42,944 Foreign exchange reserve (231) 1,651 Share based payment reserve 484 316 Retained deficit (19,875) (15,088) Equity attributable to the owners of the 27,211 31,705parent Non-controlling interests 3,177 3,867 TOTAL EQUITY 30,388 35,572

Consolidated statement of cash flows

2012 2011 Notes £000 £000 OPERATING ACTIVITIES Loss before taxation (5,068) (14,044) Adjustment for: Disposal of subsidiary 3,672 - Profit on disposal of property plant and - (15)equipment Gain on acquisition of subsidiary - (4,186) Impairment of fixed assets - 14,704 Depreciation of plant and equipment - 1,029 Interest expense 41 51 Foreign exchange losses/(gains) 5 7 Share based payment charge 181 296 Decrease/(increase) in trade and other (11) 325receivables Decrease/(increase) in inventory -

130

(Decrease)/increase in trade and other 228 (159)payables NET CASH OUTFLOW FROM OPERATIONS (952) (1,862) INVESTING ACTIVITIES Purchases of property, plant and (272) (584)equipment Purchase of investments - (121) Expenditure on mining licences (1,805)

(719)

Proceeds of disposal of property, plant - 95and equipment Net cash outflow from investing (2,077) (1,329)activities FINANCING ACTIVITIES Proceeds from issue of share capital 1,725

2,890

Expenses of issue of share capital -

(25)

Increase in/(repayment of) loans 558

(428)

Net cash inflow from financing activities 2,283

2,437

(DECREASE)/INCREASE IN CASH AND CASH (746) (754)EQUIVALENTS Cash and cash equivalents at beginning of 1,238 1,989year Effects of foreign exchange - 3 CASH AND CASH EQUIVALENTS AT end of YEAR/ 492 1,238period Notes:

Intangible exploration and evaluation assets

Exploration licences £000 Cost and book value at 1 JANUARY 2011 2,524 Acquired with subsidiary 36,116 Foreign exchange differences 1,674 Capitalised exploration costs 833 Cost and book value at 31 DECEMBER 2011 41,147 Foreign exchange differences (2,037) Capitalised exploration costs 2,041 Cost and book value at 31 DECEMBER 2012

41,151

The above value of intangible assets represents the cash and non-cashconsideration paid by the Group at the time of acquisition. The useful economiclives of the intangible assets are deemed to be the life of the mineralresources they contain. Once the commercial viability of a mining property isconfirmed and upon reaching commercial production then the asset will betransferred to property, plant and equipment and amortised on a unit ofproduction basis over the resource contained within the mining area. Three of the Group's exploration licences were due or are due for renewal in2013. The carrying value of these licenses at 31 December 2012 was £36.2million. Applications have either already been submitted or are due to besubmitted for renewal of these licences as they become due and the Directorshave no reason to believe the renewals will be unsuccessful. Provisions £000 AT 1 JANAUARY 2011 307 Acquired with subsidiary undertaking 46 Increase in provision 114 Foreign exchange differences 2 AT 31 DECEMBER 2011 469 Disposal of subsidiary undertaking (294) Increase in provision - Foreign exchange differences (27) AT 31 DECEMBER 2012 148 The Group is exposed to restoration, rehabilitation and environmentalliabilities relating to its mining operations. Estimates of the cost of thiswork, including reclamation costs, close down and pollution control, are madeon an ongoing basis, based on the estimated life of the mine.

Discontinued operations

On 30 November 2012, the group entered into a sale agreement to dispose ofSierra Leone Hard Rock Limited, which carried out all of the group's operationsin Sierra Leone. The disposal was effected in order to reduce costs and tofocus on the primary assets of the Group in Lesotho.

The results of the discontinued operations, which have been included in theconsolidated income statement, were as follows:

Year ended Year ended 31 December 31 December 2012 2011 £000 £000 Revenue - 731 Expenses (282) (2,625) Impairment of assets - (14,704) Loss before tax (282) (16,598) Tax - - Loss on disposal of discontinued operations (3,672)

-

Net loss attributable to discontinued (3,954)

(16,598)

operations (attributable to owners of the Company) A loss of £3,672,000 arose on the disposal of Sierra Leone Hard Rock Limited,being the proceeds of the disposal less the carrying amount of the subsidiary'snet assets Share capital Number £000 Authorised: Ordinary shares of £0.01 each Unlimited Unlimited Allotted, issued and fullypaid: AT 1 JANUARY 2011 142,682,819 1,427 Issued in the period 45,494,235 455 AT 31 DECEMBER 2011 188,177,054 1,882 Issued in the period 6,918,863 69 AT 31 DECEMBER 2012 195,095,917 1,951

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

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

On 25 April 2012 the Company issued 970,588 new ordinary shares in the Companyto Obtala Resources as consideration for acquiring the remaining 1.5% interestin International Diamond Consultants. Share premium account £000 At 1 jANAUARY 2011 27,955 Premium on issue of shares 15,014 Expenses on issue of shares (25) At 31 December 2011 42,944 Premium on issue of shares (see note 19) 1,938 Expenses on issue of shares - At 31 December 2012 44,882

Disposal of subsidiary undertaking

The Group disposed of its interest in Sierra Leone Hard Rock on 30 November2012.

The net assets of Sierra Leone Hard Rock at the date of disposal and at 31December 2011. 30 November 31 December 2012 2011 £000 £000 Property, plant and equipment 4,297 4,615 Inventory 63 67 Trade payables (93) (97) Site restoration provision (294) (307) Foreign exchange reserve (301) (533) 3,672 3,745 Loss on disposal (3,672) Total consideration - Non-controlling interests £000 At 1 JANUARY 2011 - Non-controlling interests in assets acquired with 3,782subsidiary undertakings Non-controlling interest in share of losses post (94)acquisition Non-controlling interest foreign exchange 179differences At 31 December 2011 3,867 Non-controlling interest in share of losses post (187)acquisition Acquisition of Non-controlling interests

(354)

Non-controlling interest foreign exchange (149)differences At 31 December 2012 3,177

Availability of report and accounts

The Company's report and accounts are expected to be published in early June2013 and copies will be posted to shareholders and will be available on requestfrom the Company's registered office (Dixcart House, Sir William Place, StPeter Port, GY1 1GX) and also available on the Company's website:www.paragondiamonds.com