PRG.L Regulatory News (PRG)

PARAGON DIAMONDS LTD - Subscription to raise £1.55 million

PR Newswire

London, May 28

Paragon Diamonds Limited ("Paragon" or the "Company") is pleased to announcethat it has conditionally raised £1.55 million (before expenses) by way of asubscription by existing and new shareholders for a total of 31,000,000ordinary shares of 1p at 5p each (the "Subscription"). The Subscription wasarranged by Sanlam Securities UK Limited.

Use of Proceeds

The funds will be used by the Company to develop the Company's LemphaneKimberlite project in Lesotho, and also for general working capital.

Subscription

The Company is proposing to issue 28,200,000 shares under its existing shareauthorities ("Initial Subscription") and the remainder (2,800,000, "SecondSubscription") under new authorities to be sought at its forthcoming AGM,expected to be held in June 2013 and notice of which will be included with theCompany's report and accounts, which are expected to be published in earlyJune.

Of the Subscription, Lanstead Capital L.P. ("Lanstead"), an institutionalinvestor, has subscribed for 25,000,000 new ordinary shares (the "LansteadSubscription Shares") for an aggregate consideration of £1.25 million. Inaddition, the Company has entered into an Equity Swap Agreement with Lansteadwhich allows the Company to retain much of the economic interest in theLanstead Subscription Shares.

The Equity Swap Agreement provides that the Company's economic interest will bedetermined and payable in twenty-four settlement tranches payable monthly upuntil May 2015 as measured against a benchmark price of 6.67p per share ("theBenchmark Price"). If the measured share price exceeds the Benchmark Price, forthat month, the Company will receive more than 100 per cent of the monthlysettlement due. There is no upper limit placed on the additional proceedsreceivable by the Company as part of the monthly settlements. Should themeasured share price be below the Benchmark Price, the Company will receiveless than 100 per cent of the expected monthly settlement on a pro rata basis.In no case would a decline in the Company's share price result in any increasein the number of ordinary shares received by Lanstead or any other advantageaccruing to Lanstead.

The Company has agreed to pay Lanstead a value payment of £200,000 inconnection with the Equity Swap Agreement within 60 days of Admission of theSubscription Shares which the Company may elect to settle by the issue toLanstead of a further 2,500,000 new ordinary shares. The Equity Swap Agreementallows the Company to secure much of the potential upside arising fromnear-term news flow.

The mid-market price of the ordinary shares at the close of business on 28 May2013 (being the latest practicable day prior to the publication of thisannouncement) was 6.125p. Admission of the new ordinary shares to AIM isexpected to become effective on 4 June 2013 (for the Initial Subscription) andshortly after the AGM for the 2,800,000 shares to be issued under the newauthorities (the Second Subscription).

The new ordinary shares will, when issued and fully paid, rank pari passu inall respects with the Company's existing ordinary shares, including the rightto receive any dividend or other distribution thereafter declared, made orpaid. Following completion of the Initial Subscription, the Company's issuedshare capital will comprise 223,295,917 ordinary shares.

Participation by related partiesin the Subscription

Martin Doyle, Stephen Grimmer and Simon Retter, all directors of the Company,are subscribing for 300,000 shares, 200,000 shares and 300,000 sharesrespectively (in aggregate 800,000 shares totalling £40,000). Theirparticipation in the Subscription is a related party transaction under the AIMRules. Buddy Doyle, Non-Executive Director, who is not participating in theSubscription, having consulted with the Company's nominated adviser, considersthat the terms of their subscription are fair and reasonable insofar as theCompany's shareholders are concerned.

Obtala Resources Limited ("Obtala"), which owns 45.35 per cent. of the currentissued share capital of the Company, is subscribing for 2,000,000 shares (£100,000). Its participation in the Subscription is a related party transactionunder the AIM Rules. The directors, having consulted with the Company'snominated adviser, consider that the terms of its subscription are fair andreasonable insofar as the Company's shareholders are concerned.

The directors and Obtala subscriptions will be included in the SecondSubscription.

Obtala has agreed not to dispose of any shares for twelve months from the dateof the Second Subscription without the prior written consent of the Company andSanlam Securities UK Limited.

MartinDoyle, Chairman,commented:

Paragon Diamonds is looking to rapidly develop producing and explorationdiamond properties located within Africa. To date it has secured a series ofpotentially high value assets which its exploration and development teams areworking to progress. The core focus at present is the Company's hard rocklicences located in Lesotho, a major producing diamond region. The Company'sprojects include:

Lemphane Kimberlite project,Lesotho (85% interest)

Lemphane is one of five known diamond bearing kimberlite pipes within Lesotho,located 5km from the Liqhobong project. The environmental assessment plan,access routes and exploration camp have been completed. DMS plant has beenconstructed and bulk sampling commenced with 15,000 tonnes processed to dateand 20,000 tonnes stockpiled awaiting processing. Extended bulk sampling of afurther 25,000 - 40,000 tonnes is possible once initial sample is completed.Mining Licence Application submitted and drilling underway.

Motete Dyke exploration, Lesotho (85% interest)

Motete is a substantial kimberlite dyke (fissure system) in close proximity tothe Lemphane project. The licence was awarded in December 2011. During 2012 aresource of 0.86Mct attributable to Paragon at a grade of 65 cpht and anaverage value of US$62/ct was defined.

Kaplamp diamond hosting Lamproite, Zambia

Kaplamp is a large prospecting licence known to host 14 Lamproite pipes withina known diamondiferous region and with five high profile targets identified forinitial evaluation. The area is highly prospective as De Beers recoveredsignificant amount of stones in 60's and 70's but relinquished area asLamproites were not yet recognised as viable. The Argyle Diamond Mine inWestern Australia is the most renowned Lamproite hosted mine - in 1994 produced39% of worlds diamond production.

Kopje kimberlite exploration, Botswana

This newly awarded prospecting licence covering 15 km sq in highly prospectivearea 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 gravelsidentified off the edge of the licence. The intention is to explore (detailedgeophysics and sampling) and map-out, then establish drill targets and define aresource. Wardell Armstrong completed a competent persons report on Tanzania inSeptember 2010.