Update on Processing Plant - Lemphane Kimberlite Lesotho

Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 25 November 2014 Paragon Diamonds Limited ("Paragon"or the "Company") Update onProcessing Plant for Lemphane Kimberlite Project, Lesotho Paragon Diamonds Limited, the AIM quoted vertically integrated diamonddevelopment company in Lesotho, Africa, is pleased to announce the finalisationof the design and order plans for a state of the art processing plant for its80% owned Meso Diamonds' Lemphane kimberlite mine (`the Project'), which islocated among a cluster of kimberlites known for producing large, high valuediamonds. The plant's modular design and use of the latest X-Ray Transmission(XRT) diamond recovery technology will reduce both capital and operating costsat Lemphane, improve diamond recovery, and as a result significantly enhancethe Project's economics. This update is in line with the Company's objective tocommence Stage I production at Lemphane in Q1 2015, which will involve theextraction of 1 million tonnes of kimberlite over a two year period and,according to an independent report, is expected to lead to the recovery of over100 diamonds larger than 9 carats, including stones over 100 carats in size. * Finalisation of design and order plans for US$6 million 75tonne per hour (0.5Mt/yr) processing plant follows a comprehensive analysis of various plant options and evaluation of technologies successfully used by other key industry players previously * Lemphane Project's economics significantly enhanced as a result of the state of the art plant: + Lower operating costs - the plant will incorporate the latest advances in XRT diamond recovery technology which is proven to significantly reduce costs, maximise the recovery of large high value stones and minimise breakages. + Capital costs of Stage II production expected to be significantly reduced from the initial scoping study as a result of the new technology when applied to a full-scale 3Mt/yr plant - it is expected that the overall size and footprint of the plant will reduce along with the associated operating costs + Improved diamond recoveries - XRT technology has been shown to significantly improve diamond recoveries compared to other conventional diamond recovery technology * An upgraded pre-feasibility study, based on the revised 48Mt of kimberlite amenable to open-pit mining and incorporating the latest improvements in both operating and capital costs, including the planned national grid electrification of the region due mid-2015 will be undertaken in due course to verify management's assertions * Titanium Capital Investments Ltd (`Titanium Capital'), a private equity investment company managed by Paragon's Chairman Philip Falzon Sant Manduca, is acting as assuror (for nil consideration) for the pre-ordering costs of the plant supporting Paragon's efforts to prepare for the plant's construction as soon as Stage I production funding negotiations have been successfully concluded - the acquisition of the plant is conditional upon Paragon securing the required funding. The assurance given by Titanium Capital constitutes a Related Party Transaction under AIM Rule 13. The directors, excluding Philip Falzon Sant Manduca consider, having consulted Northland Capital Partners Limited (the Company's Nominated Adviser) that the terms of the assurance are fair and reasonable insofar as the Company's shareholders are concerned. * Board is highly focused on prioritising debt financing over equity as a means of structuring the funding, thereby rewarding existing shareholders by generating maximum value added * Plant is on course to be commissioned in time for commencement of Stage I production in Q1 2015 Paragon's Chairman, Philip Falzon Sant Manduca said, "The construction of this`state of the art' processing plant is a major milestone for Paragon as we homein on our Q1 2015 target for the commencement of Stage I production. AsLemphane is the last, known undeveloped large diamondiferous kimberlite pipe inLesotho, Paragon benefits from last mover advantage, whereby we get to see inpractice the advantages and disadvantages of the various techniques andtechnologies employed on other kimberlites to date, as well as enjoying accessto the latest equipment. We have therefore cherry-picked the best-in-classX-Ray technology for our plant, which not only lowers our forecast operatingcosts but also maximises the recovery rates of large high value stones atLemphane, reduces the potential for breakages, and enhances on-site security. "From the outset, Lemphane's company-making credentials have always been clearto me. By potentially providing a source of large, high value diamonds,Lemphane delivers a strong platform from which we can build Paragon into avertically integrated diamond house, with material interests in upstream anddownstream activities to capture as much value as possible for ourshareholders. Thanks to the plant's modular design its capacity can be easilyscaled up to accommodate Stage II's higher volumes, which along with thecurrent technology to be adopted will translate into a significant reduction inStage II's CAPEX requirement. When measured against a static quantum ofresource, this increases the potential magnitude for future revenues andtherefore substantially improves Lemphane's potentially attractive economics.This lies behind a further increase in Titanium's commitment to Paragon in theform of assurance towards the design and pre-ordering costs of the plant to therelevant contractors, so that we have a greater potential to meet our timetableof production commencing in Q1 2015. I look forward to providing furtherupdates in the near term." Further Information The processing plant will have a name-plate capacity of 75 tonnes per hour, andat a planned utilisation (90%) and availability (92.5%) of approximately 20hours per day, an annual throughput of 0.5Mt/yr is expected. The primaryhead-feed size will be +50-85mm. A 50mm x 25mm x 20mm diamond would typicallyweigh at least 300ct, thus the potential for diamond breakage during primarycrushing operations is reduced. "Tomra®" XRT technology will be used to recover all +15mm diamonds,corresponding to circa 7.5ct for an oblate shape, typical of type IIa diamonds.Furthermore, all XRT feed will be sorted to recover diamonds prior to anysubsequent crushing, and secondary crushing will be at a maximum closed-sizesetting of 35mm, corresponding to circa 100ct for an oblate shape. As such, thevast majority of the one hundred and nineteen +9ct diamonds, including a +100ctdiamond, four 50-100ct and twenty two 20-50ct diamonds predicted from the SizeFrequency Model for the initial 1Mt of mining, will be recovered by the XRTcircuit, without further exposure to a secondary crushing circuit. After coarse diamond recovery, all material will be progressively reduced to-15mm before further processing by traditional Dense Media Separation (DMS) andfluorescent X-ray "FlowSort®" recovery to extract the smaller (