Acquisition of Lanstead Holding in Company

Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 11 November 2014 Paragon Diamonds Limited ("Paragon Diamonds"or the "Company") Acquisition of Lanstead Holding in Company Paragon Diamonds Limited, the AIM quoted diamond development company inLesotho, Africa, is pleased to announce that it has agreed to purchase,conditional on shareholder approval, 63,000,000 ordinary shares in the Company,representing 18.9% of Paragon's entire issued share capital, from LansteadCapital L.P. (`Lanstead') at a price of 3p per share (`the Transaction') in anoff market purchase. The shares so purchased will be cancelled. The Transactionis in line with management's focus on generating significant value forshareholders, as it looks to commence Stage 1 production of large high valuestones at its flagship Lemphane kimberlite diamond project, in Lesotho, in thenear term. In addition the Company has agreed to settle all outstanding equity swaps heldwith Lanstead over the share capital of the Company (`the Equity Swap'). Theamount settled under equity swaps is anticipated to be approximately £553,000and will be offset against the purchase price for the Purchase Shares. TitaniumCapital Investments Ltd (`Titanium Capital'), a private equity investmentcompany managed by Paragon's Chairman Philip Falzon Sant Manduca is providing aloan of approximately £1.3million to Paragon (`the Loan') in order to completethe Transaction and Equity Swap. The Loan provided by Titanium Capital isrepayable on demand, carries no interest and is convertible into shares at aprice of 3pence per share. Following completion of the Transaction and EquitySwap, Lanstead will no longer have an interest in the shares of Paragon. The Company is also working towards funding its Stage 1 production and allefforts are being addressed to ensure minimum dilution for existingshareholders. This includes the provision of debt finance to ensure maximumvalue is created for Paragon's shareholders. By virtue of being a substantial shareholder (as defined in the AIM Rules) theTransaction and Equity Swap constitutes a Related Party Transaction under AIMRule 13. The directors consider, having consulted Northland Capital PartnersLimited (the Company's Nominated Adviser) that the terms of the Transaction andthe Equity Swap are fair and reasonable insofar as the Company's shareholdersare concerned. The Loan also constitutes a Related Party Transaction under AIM Rule 13. Thedirectors, excluding Philip Falzon Sant Manduca consider, having consultedNorthland Capital Partners Limited (the Company's Nominated Adviser) that theterms of the Loan are fair and reasonable insofar as the Company's shareholdersare concerned. A notice of general meeting is being prepared by the Company and will becirculated to shareholders shortly requesting the authority to execute theTransaction. Paragon's Chairman, Philip Falzon Sant Manduca said, "The acquisition ofLanstead's interest highlights management's commitment to building a verticallyintegrated diamond company, while ensuring the issued share capital is kept toa minimum so that shareholders capture as much of the value generated viapositive share price performance. Since becoming Executive Chairman of Paragon,my conviction in the wider management team, the quality of Lemphane's diamondresource, and in Lesotho itself, have all increased from already elevatedlevels, and this lies behind the financing provided by Titanium Capital. Theon-going support of Titanium increases Paragon's options with regards tofunding Stage 1 production, which will help ensure existing shareholders'exposure to the considerable upside on offer is maximised. "Stage 1, which is targeted to commence in Q1 2015, will involve 1 milliontonnes of ore mined which, according to an independent report, is expected toresult in the recovery of over 100 diamonds larger than 9 carats, includingstones up to 100 carats. In addition to generating significant revenues, we arehighly confident the near term commencement of Stage 1 will confirm Lemphane'scredentials as the next world class pipe in Lesotho. Finally I would like tothank Lanstead for their support during what was a difficult time for Paragon.The Company is now well placed to attract long term investment from strategicshareholders who will support management's ambition to build Paragon into oneof the most cost-efficient and successful large diamond production anddistribution businesses. I look forward to providing further updates on ourprogress in the near future." **ENDS** For further information please visit www.paragondiamonds.com or contact: Philip Falzon Sant Paragon Diamonds Limited +44 (0) 20 7099 1940Manduca Simon Retter Paragon Diamonds Limited +44 (0) 20 7099 1940 Edward Hutton/Gerry Northland Capital Partners +44 (0) 20 7382 1100Beaney Limited John Howes/Charles Northland Capital Partners +44 (0) 20 7382 1100Laughton Limited Felicity Edwards St Brides Media and Finance Ltd +44 (0) 20 7236 1177 Frank Buhagiar St Brides Media and Finance 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 companymaximizing the margins gained from being exposed from the mining to selling ofdiamonds.