Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 23 May 2014 Paragon Diamonds Limited (�Paragon Diamonds� �the �Company� or �the Group�) Audited Final Results Paragon Diamonds Limited, the AIM quoted diamond development and production company, is pleased to announce its audited final results for the year ended 31 December 2013. Overview � Substantial progress made towards building a cash generative diamond exploration and production company with a portfolio of multi-stage projects located in known diamondiferous regions of Africa � On course to commence Stage 1 production late 2014 subject to financing and generate first revenues of US$8m per annum late 2014 at the open pit Lemphane Kimberlite in Lesotho � 20,000 carats targeted with an estimated average value of US$750 per carat o Successfully undertook 300 carat bulk sampling programme at Lemphane, early 2013 and achieved US$2,400 per carat valuation for an individual diamond o Scoping Study based on 27Mt of kimberlite, estimated mining costs at less than US$20/tonne, capital costs of less than US$5/tonne, a notional average annual operating profit of US$35m and a 22% IRR using base case assumptions o 1,373 metres of drilling resulted in an 80% increase in the overall tonnage at Lemphane to 350m from 27Mt to 48.8Mt of kimberlite � potential positive implications to improve Lemphane�s economics o Secured a steady water supply from the nearby Malibamatso River, after a water pipeline was installed capable of pumping 500 cubic metres of water to the processing plant per day o MOU signed for a 75 tonne per hour processing plant which will significantly increase production capacity at Lemphane o Awarded a Mining Lease for Lemphane for an initial duration of 10 years, after which it is renewable in accordance with the Mines & Minerals Act of 2005 for a further three consecutive 10 year periods � Secured a pipeline of highly prospective projects representing future development potential o 85% owned high-grade Motete Kimberlite dyke in Lesotho which has a resource of 1.56Mt at 65cpht for 1M carats o Kaplamp project in Zambia which hosts 14 Lamproite pipes within a well-known diamondiferous region o Acquired 442 sq km licence in the prospective Tsabong Kimberlite field, Botswana Chairman�s Statement Our objective is to build a cash generative diamond exploration and production group with a portfolio of multi-stage projects located in known diamondiferous regions of Africa.

With this in mind, I am pleased to report that thanks to the excellent progress made during the year under review, subject to completing the required funding, we expect to commence initial production and generate first revenues later this year at our flagship and most advanced project, the open pit Lemphane Kimberlite Project in Lesotho (�Lemphane�). Being one in a cluster of five major kimberlite pipes in a region of Lesotho known for producing large and exceptionally high quality diamonds that sell at some of the highest values per carat in the world, the potential of Lemphane has always been clear to us.

As a result, while we were delighted, we were not surprised with the US$2,400 per carat valuation achieved for an individual diamond recovered during the initial stages of our bulk sampling programme in early 2013.

Even though this stone was part of a limited parcel of 300 carats, it nevertheless indicated the presence of large high value diamonds.

It was even more encouraging that this initial small parcel of diamonds has features in common with nearby kimberlites of Mothae and Let�eng, such as a coarse diamond size frequency and Type IIa diamonds.

Let�eng is a world class mine where two 160+ carat diamonds were recovered and recently sold for US$68,867 and US$14,636 per carat. 2013 saw us successfully implement a three pronged strategy to develop and de-risk Lemphane: a scoping study to determine the economics of the project; a bulk sampling programme to confirm the presence of large high value diamonds; and a deep drilling campaign to further define the resource.

All three generated highly positive results: the scoping study estimated all-in mining costs at less than US$20 per tonne, capital costs of less than US$5 per tonne, a notional average annual operating profit of US$35m and a 22% IRR using base case assumptions; the bulk sampling programme not only established surface grades but also included the recovery of large high value diamonds of up to 8.9 carats and US$2,400/ct respectively; while the interpretation of 1,373 metres of drilling on four holes to a depth of 260m below surface resulted in an 80% increase in the overall tonnage at Lemphane to 350m from 27Mt to 48.8Mt of kimberlite.

As the scoping study was completed while the bulk sampling and drilling programmes were on-going, it was based on mining 27Mt of ore to 280m below surface at a 1.3:1 waste to ore ratio.

The 80% increase in tonnage to 48.8Mt of kimberlite therefore has the potential to double the current volume of kimberlite used in the scoping study with obvious positive implications for the Project�s economics. In tandem with our work on the ground and the aim of bringing Lemphane into production in the near-term, during 2013 we secured a steady water supply from the nearby Malibamatso River, after a water pipeline was installed capable of pumping 500 cubic metres of water to the processing plant per day.

We also signed a Memorandum of Understanding in December 2013 to acquire a 75 tonne per hour processing plant from the Lucara Diamond Corp operated Mothae kimberlite, which will significantly increase production capacity at Lemphane.

The purchase is expected to be completed as soon as the required funding arrangements have been agreed and relocation of the plant is due to commence shortly afterwards.

Finally and most significantly, we were granted a Mining Lease for Lemphane for a duration of 10 years after which it is renewable in accordance with the Mines & Minerals Act of 2005 for a further three consecutive 10 year periods.

Under the terms of the Lease, which were finalised in February 2014, the approved programme of mining is a two year Stage 1 mine plan of 500,000 tonnes per annum followed by an eight year Stage 2 mine plan of 3,000,000 tonnes per annum for an initial open pit life of ten years. Thanks to the milestones achieved at Lemphane, we are now in a position to commence Stage 1 production later this year, subject to completing the required financing.

This will last for two years and involve mining 1,000,000 tonnes of ore, targeting 20,000 carats and a more than doubling of the average value per carat to approximately US$750.

As well as generating revenues of approximately US$8m per annum over a two year period, Stage 1 will more importantly further define an Inferred and Indicated Resource to underpin a decision to advance to Stage 2 production.

The bulk sampling programme demonstrated that the processing of larger volumes of kimberlite during Stage 1 will improve proportionally the recovery of additional larger diamonds which will then be used to determine representative grade and value estimations for Lemphane.

Stage 1 will therefore provide valuable data to feasibility studies ahead of a ramp up in production to Stage 2 production. In line with our strategy to build a multi-stage portfolio of highly prospective diamond projects in Africa, in November 2013 we were awarded a new, large 442 sq km licence in Botswana.

As with Lemphane, the licence has a highly prospective address being located in the Tsabong Kimberlite field, which hosts many world class size kimberlites including a recent 200 ha super kimberlite discovery.

A comprehensive review of historical and existing data is currently underway on the licence area. Financial Results The Group generated a loss after tax of �1.3 million during the year (2012: loss of �5.1 million).

In order to ensure as much funds as possible are invested in the ground, administration costs continue to be tightly controlled and totalled �0.7 million during the year (2012: �1 million). The Group held cash of �0.2 million as at 31 December 2013 (2012: �0.5 million). The Group had net assets of �30.9 million as at 31 December 2013, (2012: �30.4 million) and intangible exploration assets are carried at �40.6 million (2012: �41.1 million).

Group borrowings totalled �2.6 million at 31 December 2013 (2012: �2.6million). Outlook Thanks to the considerable work we carried out over the course of the year, our belief that Lemphane, the last known significantly sized kimberlite to be developed in Lesotho, has the potential to be a billion dollar resource has strengthened.

The results of a limited bulk sampling programme are consistent with what would be expected from a parcel of similar size from other high value diamond populations from kimberlites mined in Lesotho such as Let�eng and Mothae.

Having finalised the terms of the Mining Lease post the period end, we will now look to accelerate plans to commence Stage 1 production at Lemphane later this year.

With demand forecast to outstrip supply for the foreseeable future, Paragon Diamonds is well placed to take advantage of the attractive fundamentals of the diamond market, build a cash generative diamond producer, and in the process generate value for all our shareholders. The Group is in advanced stage negotiations in respect of securing the required funding for Stage 1 production and I look forward to updating the market on this shortly. Finally I would like to thank the Board, management and staff, particularly our operational team in Lesotho, for their continued hard work during the year which has seen us achieve so much in 2013 and which subject to securing the required financing has set us on course to commence production at Lemphane later in 2014. Martin Doyle Executive Chairman 22 May 2014 Consolidated Statement of Comprehensive Income For the year ended 31 December 2013
2013 2012 Continuing operations
�000 �000 Administration costs
(706) (1,073) Fair value loss in remeasuring derivative financial instrument
(558) - Finance costs
(57) (41) LOSS BEFORE TAXATION
(1,321) (1,114) Taxation
- - LOSS FOR THE year from continuing operations
(1,321) (1,114)
Discontinued operations
Loss for the year from discontinued operations
- (3,954) LOSS FOR THE YEAR
(1,321) (5,068)
Attributable to:
Owners of the parent
(1,321) (4,881) Non-controlling interests
- (187)
(1,321) (5,068)
Other comprehensive income:
Exchange differences on translation of foreign operations
(1,555) (2,031) TOTAL COMPREHENSIVE INCOME FOR THE YEAR
(2,876) (7,099) Attributable to:
Owners of the parent
(2,918) (6,763) Non-controlling interests
42 (336)
(2,876) (7,099)
LOSS PER SHARE
>From continuing and discontinuing operations
Basic and diluted (pence)
(0.60) (2.61)
>From continuing operations
Basic and diluted (pence)
(0.60) (0.57)
Consolidated Statement of Changes in Equity As at 31 December 2013
Share capital Share premium Foreign exchange reserve Share based payment reserve Retained deficit
Total
Non-controlling interests Total attributable to owners of parent
�000 �000 �000 �000 �000 �000 �000 �000 At 1 January 2012 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 on translation of foreign operations - - (1,882)
- -
(1,882)
(149) (2,031) Total comprehensive income for the year - - (1,882)
- (4,881)
(6,763)
(336) (7,099) Issue of shares 69 1,938 - - - 2,007 - 2,007 Share based payment - - - 181 - 181 - 181 Transfer of share based payment charge - - -
(13) 13
-
- - Arising on acquisition of non-controlling interest - - -
- 81
81
(354) (273) At 31 December 2012 1,951 44,882 (231) 484 (19,875) 27,211 3,177 30,388 Loss for the year - - - - (1,321) (1,321) - (1,321) Exchange differences on translation of foreign operations - - (1,597)
-
-
(1,597)
42 (1,555) Total comprehensive income for the year - - (1,597)
-
(1,321)
(2,918)
42 (2,876) Issue of shares 935 2,352 - - - 3,287 - 3,287 Expenses on issue of shares - (66) - - - (66) - (66) Share based payment - - - 180 - 180 - 180 At 31 December 2013 2,886 47,168 (1,828) 664 (21,196) 27,694 3,219 30,913
Consolidated Statement of Financial Position As at 31 December 2013
2013 2012
�000 �000 ASSETS
Non-current assets
Intangible exploration and evaluation assets
40,635 41,151 Derivative financial instrument
607 - Property, plant and equipment
422 769 Total non-current assets
41,664 41,920
Current assets
Trade and other receivables
131 177 Inventory
38 - Derivative financial instrument
751 - Cash and cash equivalents
226 492 Total current assets
1,146 669 TOTAL ASSETS
42,810 42,589
LIABILITIES
Current liabilities
Trade and other payables
(230) (310) TOTAL CURRENT LIABILITIES
(230) (310)
NON-CURRENT LIABILITIES
Site restoration provision
(118) (148) Loans
(2,600) (2,616) Deferred tax liability
(8,949) (9,127) Total non-current liabilities
(11,667) (11,891) TOTAL LIABILITIES
(11,897) (12,201)
NET ASSETS
30,913 30,388
EQUITY
attributable to owners of the parent
Share capital
2,886 1,951 Share premium
47,168 44,882 Foreign exchange reserve
(1,828) (231) Share based payment reserve
664 484 Retained deficit
(21,196) (19,875) Equity attributable to the owners of the parent
27,694 27,211 Non-controlling interests
3,219 3,177 TOTAL EQUITY
30,913 30,388
Consolidated Statement of Cash Flows As at 31 December 2013
2013 2012
�000 �000 OPERATING ACTIVITIES
Loss before taxation
(1,321) (1,114) Adjustment for:
Interest expense
57 41 Foreign exchange losses
8 6 Share based payment charge
180 181 Decrease/(increase) in trade and other receivables
46 (11) Increase in inventory
(38) - (Decrease)/increase in trade and other payables
(80) 227 Fair value loss on remeasuring derivative financial instrument
558 - NET CASH OUTFLOW FROM CONTINUING OPERATIONS
(590) (670)
NET CASH OUTFLOW FROM DISCONTINUED OPERATIONS
- (282)
Net cash outflow from operations
(590) (952)
INVESTING ACTIVITIES
Purchases of property, plant and equipment
(94) (272) Expenditure on exploration licences
(975) (1,805) Net cash outflow from investing activities
(1,069) (2,077)
FINANCING ACTIVITIES
Proceeds from issue of share capital
1,150 1,725 Proceeds from derivative financial instrument
221 - Expenses of issue of share capital
(66) - Increase in loans
88 558 Net cash inflow from financing activities
1,393 2,283
DECREASE IN CASH AND CASH EQUIVALENTS
(266) (746) Cash and cash equivalents at beginning of year
492 1,238 Effects of foreign exchange
- - CASH AND CASH EQUIVALENTS AT end of YEAR
226 492
Notes 1.

The financial information contained in this announcement does not comprise full statutory accounts. 2.

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU.

The financial statements have been prepared on the historical cost basis. 3.

The audit report accompanying the annual report while unqualified contains an emphasis of matter in respect of going concern. 4.

The Annual General Meeting of the Company will be held at the Company�s registered office, Dixcart House, Sir William Place, St Peter Port, Guernsey, GY1 1GX, on 8 July 2014 at 11.00 am. 5.

The report and accounts for the year ended 31 December 2013 will be posted to shareholders shortly and will be available on the Company�s website at www.paragondiamonds.com in due course. **ENDS** For further information please visit www.paragondiamonds.com or contact: Martin Doyle Paragon Diamonds Limited +44 (0) 20 7099 1940 Simon Retter Paragon Diamonds Limited +44 (0) 20 7099 1940 Lindsay Mair Sanlam Securities UK +44 (0) 20 7628 2200 Catherine Miles Sanlam Securities UK +44 (0) 20 7628 2200 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
Felicity [cid:image002.png@01CECBDD.61F8A860] Felicity Edwards St Brides Media & Finance Ltd 3 St Michael�s Alley, London, EC3V 9DS www.stbridesmedia.co.uk Tel: 0207 236 1177 | Mob: 07748843871 | Twitter: @StBrides1