PRG.L Regulatory News (PRG)

Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 13 March 2015 Paragon Diamonds Limited ("Paragon"or the "Company") Update onLemphaneDiamond Projectand Placing Paragon Diamonds Limited, the AIM quoted vertically integrated diamonddevelopment company in Lesotho, Africa, is pleased to provide a positive updateon the development of its Lemphane kimberlite Pipe Project (`Lemphane' or `theProject') located in Lesotho, Africa, and in respect to a proposed acquisitionof a diamond resource in Africa. If successful the proposed acquisition willsignificantly enhance the asset base of the Company and its valuation ahead ofStage I production at Lemphane in Q2 2015. Highlights * Stage I production at Lemphane remains on track to commence in Q2 2015 * + Lemphane is located among a cluster of kimberlites known for producing exceptionally large, high value diamonds + Extraction of approximately 1 million tonnes of kimberlite over an 18 month to two year period + Targeting recovery of over 100 diamonds larger than 9 carats, including stones over 100 carats in size * Potential to significantly reduce future operating costs at Lemphane- discussions remain on-going with contractors with regards to the electrification of the mining operations * £130,000 raised in new equity to fund critical due diligence on a prospective diamond mine acquisition with validated resource in Africa, supported by International Triangle General Trading LLC ("ITGT") financing the acquisition as opposed to equity dilution Paragon's Chairman Philip Falzon Sant Manduca said: "We continue to work aggressively to add value for shareholders. Discussions toreduce our energy costs at Lemphane by tapping in to the electrification whichis now being established will be a significant contributor to added netrevenues. In addition, we are seeking a new acquisition target which has akimberlite diamond resource in Africa, and have been performing due diligenceto validate our strategy for development. We can achieve significant economiesof scale by combining management teams at both Lemphane and the potentialacquisition mine and through the ordering of relevant plant equipment and useof sub-contractors should our efforts at an acquisition be successful, we wouldlook to develop both mines simultaneously. At this stage Paragon is one of anumber of potential acquirers and there is no guarantee that the Company willbe successful. If we do not make an immediate acquisition, nothing changes andwe remain on schedule for Q2 2015 production at Lemphane. "We have completed a small fund raise to isolate and thus segregate the costsassociated with a potential acquisition of a resource, rather than utilisedevelopment capital to acquire other assets. If an acquisition is successful itshould significantly re-rate the company, significantly escalate production andrevenue numbers and of course one would hope be reflected in a higher shareprice. As a consequence, I support this fundraise from existing shareholders tofinance the rigorous due diligence involved to support an acquisition, which isnot inconsistent with my stated ambition to keep share dilution to a minimum.Should the acquisition be successful, ITGT will finance it on agreeable terms,and at a lower rate of interest, rather than via further share issuance. "Paragon Diamonds is a company in the right place at the right time and Ifirmly believe with the right strategy to develop itself into a holisticdiamond company controlling the sourcing and supply of investment gradediamonds. In the six months that I have been a director, we have cleaned up theshareholder register and agreed significant funding and financing with ITGT onfavourable terms. Furthermore we have established the Company's distributionchannels in Dubai, and upgraded our business strategy to focus on productionand not exploration, which is evidenced by our decision to move away from ourcurrent ownership of unexplored licenses in Zambia, Botswana and Tanzania andtowards the potential acquisition of a further resource which can combine withLemphane to produce significant economies of scale and an increased level ofproduction. I have become increasingly positive about our prospects month onmonth since I became the Chairman, a time when Titanium Capital InvestmentsLtd. evaluated Paragon as the best value diamond company on the market in whichto invest in, alongside having the greatest potential." Lemphane Mine Site Preparatory earthworks are already scheduled at Lemphane. The first stage willinvolve the construction of a dual haul road, capable of handling the larger 40tonne haul trucks between the kimberlite orebody and processing plant site;preparing the 75tph (0.5Mt/year) processing plant site in anticipation of civilconstruction of foundations and footings; and commencing work on a terracedsite for intended residential staff camp, planned to house circa 75 employeesand contractors. Immediately following completion of the preparatory earthworks, earth movingmachinery will be deployed to undertake final pre-stripping of overburden overthe Lemphane kimberlite to enable initial pit development; the construction ofaccess ramps and roads within the planned 1 million tonne sub-pit andearthworks on the access to, and retention wall toe for the planned 0.5mlncubic metres tailings storage facility, and associated drainage, retaining walland water dams, the design of which has recently been finalised by theCompany's civil engineering consultants. It is proposed that the dam construction and mining will be undertaken byleading mining contractor, Matekane Mining Investment Company (`MMIC'), theprincipals of which hold a 12.9% interest in Paragon Diamonds. MMIC is the mainmining contractor on two neighbouring mines moving in excess of 20 milliontonnes of kimberlite and basalt waste rock per annum. Importantly, discussions are on-going with the consortium developing theLesotho Electric Corporation HT regional 132kV power line with regards to theelectrification for both Stage I and Stage II mining operations which has thepotential to significantly reduce the Project's operating costs. Additional Drilling Drilling of a final eight holes to confirm the dimensions of the kimberlite atbetween 200-300m depth below surface is due to complete shortly. Geotechnicaldrilling will also be carried out for the purposes of the tailings storagefacility and open pit construction at Lemphane by Rodio Geotechnical Services,who are the main core drilling contractor at the nearby Letšeng Diamond Mine. Issue of Equity The Company has raised approximately £130,000 by placing 2,363,637 new ordinaryshares of 1p each in the Company with existing shareholders at a placing priceof 5.5 pence per share (the "New Ordinary Shares"). In anticipation of thefunding package from ITGT, a privately owned international investment groupwith a focus on construction, automobiles, real estate and banking completingimminently, the Company will use these proceeds to advance due diligence on aproposed acquisition of a diamond resource in Africa which, if successful, willsignificantly enhance the asset base of the Company and its valuation.Management believe that it is important to segregate capital already raised andallocated to production at Lemphane from any additional investment expended toacquire additional resource. ITGT will partner with Titanium CapitalInvestments Ltd. to additionally finance any acquisition should it besuccessful. This funding keeps dilution to existing shareholders to a minimumwhilst ensuring that the relevant work can be undertaken on the targetedacquisition in a timely manner, which will add significantly to shareholdervalue. Application for the 2,363,637 New Ordinary Shares to be admitted to trading onAIM ("Admission") will be made and Admission is expected to occur on or around19 March 2015. The New Ordinary Shares will rank pari passu with the existingordinary shares of 1p each (the "Ordinary Shares") in the Company. Total Voting Rights Following Admission, the Company's enlarged issued share capital will comprise277,888,291 Ordinary Shares. The Company does not hold any Ordinary Shares intreasury. Therefore, the total number of Ordinary Shares with voting rightswill be 277,888,291. This figure may be used by shareholders in the Company asthe denominator for the calculations by which they will determine if they arerequired to notify their interest in, or a change in their interest in, theshare capital of the Company under the FCA's Disclosure and Transparency Rules. In accordance with the AIM Rules for Companies, the information in thisannouncement has been reviewed by Stephen Grimmer PhD., MSc., a qualifiedgeologist with over 25 years diamond exploration experience. **ENDS** For further information please visit www.paragondiamonds.com or contact: Philip Falzon Sant Paragon Diamonds Limited +44 (0) 20 7182 1920Manduca Simon Retter Paragon Diamonds Limited +44 (0) 20 7182 1920 David Hignell/Gerry Northland Capital Partners +44 (0) 20 7382 1100Beaney Limited John Howes/Mark Northland Capital Partners +44 (0) 20 7382 1100Treharne Limited Felicity Winkles St Brides Partners Ltd +44 (0) 20 7236 1177 Frank Buhagiar St Brides Partners Ltd +44 (0) 20 7236 1177 Notes Paragon Diamonds has a pipeline of projects in Lesotho, Botswana and Zambia,the most advanced of which is its Lemphane Kimberlite Pipe Project in Lesotho,located close to the world class Letšeng mine, Lesotho's largest diamond mine.Lemphane is the last known world-class sized kimberlite to be developed inLesotho. Among the stones recovered in the Company's 2013 bulk samplingprogramme were several large high value stones of up 8.9 carats in size andindividual diamond values in excess of US$2,400/ct have been achieved,demonstrating the potential for Lemphane to hold large and valuable diamonds.The first of a two stage production programme is currently expected to commencelate 2014 (subject to financing) which will further define the resource atLemphane. As increased tonnages of kimberlite are processed the proportion oflarger diamonds recovered will improve, increasing the average value ofdiamonds recovered at the project, as was the case at Letšeng. Stage 1 production will cover a two year period during which approximately 1 Mtof kimberlite will be mined and processed out of the currently estimated 48.6Mtof kimberlite (to 350m depth) at the site, using a 75 tonne per hour processingplant. The Company is targeting 20,000 carats during Stage 1 production with anestimated minimum value of US$930 per carat that is expected to generaterevenues in excess of US$9m per annum. Cash flow will be reinvested to furtherdevelop Lemphane and complete a bankable feasibility study, a 3D geologicalmodel and a substantial inferred resource ahead of commencing the Stage 2production phase. Stage 2 will see production ramped up to 3Mt/year with peakproduction expected to hit 65,000 carats per year of high value diamonds. It is the intention of the Company to become a fully integrated diamond companymaximising the margins gained from being exposed from the mining to selling ofdiamonds.