Paragon Diamonds Ltd Positive Technical Study for Mothae Kimberlite Project

 
TIDMPRG 
 
Paragon Diamonds Limited / Index: AIM / Epic: PRG / Sector: Resources 
 
15 September 2015 
 
             Paragon Diamonds Limited ('Paragon' or the 'Company') 
 
            Positive Technical Study for Mothae Kimberlite Project 
 
Paragon Diamonds Limited, the AIM quoted diamond development company, is 
pleased to announce the results of two independent studies carried out by The 
MSA Group on the Mothae Kimberlite Project ('Mothae'), located in Lesotho, that 
Paragon is in the process of acquiring. 
 
The conclusions exceed management's initial expectations, as detailed in the 
announcement of 5 May 2015, that Mothae represents a low cost opportunity for 
Paragon to generate significant value for shareholders through the potential 
recovery of large high value diamonds.  Mothae is only 5 km from the world 
class Letseng diamond mine in Lesotho which is located within a cluster of 
kimberlites, including Paragon's Lemphane Kimberlite Pipe Project ('Lemphane'). 
 
These technical reports are intended as components of a future Preliminary 
Economic Assessment (PEA) and Pre-feasibility Study (PFS) and review multiple 
mining scenarios and simulated progressive cutting of processing costs, which 
will now be explored during final plant and open pit design work. 
 
Highlights of the studies include: 
 
  * Potential to significantly increase Mothae's NPV from management's original 
    estimates. 
  * Improved strip ratio has been identified at <1:1 compared to <1.5:1 
    previously assumed. 
  * Potential for average diamond values up to US$2,000/ct.. 
  * Several Mining Scenarios exceeding 20Mt at US$40+/t ore value in a low 
    operating cost mine exceeding 2Mt and 40,000 carats per year. 
 
These studies focussed on determining both the trade-off between maximum 
diamond value recovery against processing costs (using a range of bottom 
cut-off screen sizes-BCOS), as well as  optimum opencast mining scenarios at 
the Mothae Kimberlite based on the mining of the Main Pipe only, which 
comprises the South-West (SW), South-East (SE) and South-Central (SC) domains 
of the kimberlite.  The basis for both studies was the NI 43-101 Technical 
Report completed by Lucara Diamond Corporation in February 2013. 
 
Mothae Revised Diamond Revenue Models 
 
The revenue scenarios compiled by The MSA Group come from a sample of 
23,738 cts that were used to model the average diamond value per size class for 
each of the four kimberlite domains.  Average diamond values were calculated 
for three bottom cut-off screens (+2 mm; +3 mm; +4 mm) using three revenue 
models.  Key findings are summarised below: 
 
  * The resource of Main Pipe (Southern Lobe) comprising SW+SC+SE Domains is 
    estimated at 32.41 million tonnes at  an average diamond value of  US$1,352 
    /ct and a grade of 2.2 cpht at a 3 mm bottom cut-off screen (BCOS).  The 
    +20 ct diamond values were capped at US$6,492/ct for study purposes. 
  * Upside potential of the planned mining area, SW+SC+SE Domains at US$1,971 
    per carat and a grade of 2.2 cpht at 3 mm BCOS with +20 ct diamond value 
    capped at US$11,057/ct, has been estimated. 
  * A worst-case "Downside" model, which is based on modelled revenue of 
    US$1,024/ct at 3 mm BCOS for SW+SC+SE, still yields US$22.53/t ore value, 
    i.e. above anticipated break-even.  The "Downside" model at 3 mm BCOS also 
    assumes overall diamond values circa 20% lower than those achieved in the 
    actual 2012/13 valuation and sale of diamonds recovered during trial 
    mining. 
  * Modelled ore values at 3 mm BCOS of between US$29.75 and US$43.36/t would 
    increase to US$32.77/t and US$48.07/t respectively by excluding the 6.8 Mt 
    SE Domain. 
 
Summary of Indicated/Inferred Resource Tonnes and Average Grades & Values 
 
   Bottom     Domain     Ind & Inf.                     Cumulative 
  Cut-off 
 
                         Mt      cpht     Mt   cpht  US$/ct     US$/ct    US$/ct 
                                                      High       Med.       Low 
 
   @ +2mm       SW        21.18     2.5  21.18  2.5    $1,887     $1,185      $895 
 
               +SE         4.44     4.4  25.62  2.8    $1,777     $1,142      $864 
 
               +SC         6.79     2.6  32.41  2.8    $1,640     $1,069      $812 
 
                +N         6.55     2.4  38.96  2.7    $1,638     $1,076      $817 
 
              Total       38.96     2.7 
 
   @ +3mm       SW        21.18     2.0  21.18  2.0    $2,162     $1,469    $1,106 
 
               +SE         4.44     3.5  25.62  2.3    $2,090     $1,425    $1,075 
 
               +SC         6.79     1.9  32.41  2.2    $1,971     $1,352    $1,024 
 
                +N         6.55     1.9  38.96  2.1    $1,991     $1,359    $1,028 
 
              Total       38.96     2.1 
 
   @ +4mm       SW        21.18     1.4  21.18  1.4    $3,016     $2,033    $1,519 
 
               +SE         4.44     2.3  25.62  1.6    $2,946     $1,991    $1,490 
 
               +SC         6.79     1.2  32.41  1.5    $2,833     $1,924    $1,443 
 
                +N         6.55     1.3  38.96  1.5    $2,850     $1,932    $1,450 
 
              Totals      38.96     1.5 
 
Source:  The MSA Group J3105 report 
 
Mothae Opencast Mining Scenario Conclusions 
 
A sequence of eleven Whittle pit optimization scenarios were undertaken by The 
MSA Group, using 2 mm, 3 mm & 4 mm BCOS?with plant operating costs reduced by 
-5% to -20% in some scenarios (to reflect the coarser BCOS) and to include 
various elements of the geological domains.  Highlights are: 
 
  * Optimum scenarios for mining the combined SW+SC+SE domains at a waste:ore 
    ratio of 1:1 and either 3 mm or 4 mm BCOS yield a 12 year initial open pit 
    life. 
  * A typical scenario (SW+SC+SE @ 3 mm BCOS and -5% on processing costs) 
    yields a provisional discounted pit value based on industry standard 
    assumptions for Lesotho mining costs of US$ 190M at 10% discount on a 
    resource of 22.6 Mt producing 42,000 carats per annum over a 12 year open 
    pit life.  Capital expenditure, financing, taxation etc. were not included 
    in the analysis. 
  * The possibility to increase pit depth to in excess of 300 m at a waste:ore 
    ratio of under 1.5:1 and to incorporate additional kimberlite domains into 
    the mine plan subject to ongoing resource development work. 
  * Note, the potential differences in processing related to different amounts 
    of plant throughput due to increased bottom cut-off screen sizes were 
    simulated by progressively cutting processing costs.  This expediency is 
    broadly indicative of the expected cost-savings (both capital and 
    operating) that would be associated with the different plant 
    configurations.  Paragon will conduct a PEA or a PFS to more accurately 
    quantify the potential cost savings associated with larger bottom screen 
    cut-off sizes and to determine overall longer-term project viability. 
 
Dr Stephen Grimmer, Managing Director, said: 
 
"The reports compiled by The MSA Group confirm and exceed Paragon Diamonds' 
initial internal projections of the resource being acquired at Mothae.  It is 
clear that the combined SW+SC domains in particular represent a higher-value, 
relatively higher-grade resource, exceeding 25 Mt in total, with the potential 
for a significant percentage of carats present in large diamonds.  At 3 mm the 
grade is 2.3 cpht and US$1,425/ct ("Best Estimate") with potential upside for 
US$2,090/ct (the "Upside"). 
 
"It is important to note that in the "Best Estimate" case, the report caps all 
diamonds above 20 cts at US$6,492/ct value - even in the "Upside Scenario" all 
diamonds above 20 cts are still capped at US$11,057/ct.  Large Lesotho diamonds 
range up to US$70,000/ct and Mothae itself has historically achieved US$50,000+ 
/ct for a large diamond in December 2011.  At a 4 mm BCOS the entire 5 Ha and 
32 Mt Southern Lobe (SW+SC+SE) has a grade of 1.5 cpht and a "Best Estimate" of 
US$1,924/ct (US$2,800/ct with "Upside").  This is comparable in potential 
grade and average diamond value to the 4 Ha Letseng Satellite pipe, only 5 km 
distant, and the mainstay of production at that mine. 
 
"The favorable 1:1 waste:ore ratio (compared to initial in-house estimates as 
high as 1.5:1) should result in operating cost savings of up to US$1-2/t based 
on industry-standard mining contractor costs of  ZAR25-30/t plus fuel and as 
provided in the MSA Report.  Further cost reductions could result from using 
extensive X-ray transmission recovery (XRT) technology to reduce water and 
power consumption and waste generation and at the same time more reliable 
recovery of large diamonds with reduced breakage." 
 
Funding Update 
 
The Company is in advanced negotiations with several funding providers as it 
looks to complete the acquisition of a 75% interest in, and operatorship of, 
Mothae from Lucara Diamond Corporation ('Lucara'), a TSX quoted mining company 
(the 'Acquisition").  Subsequent to the conclusion of these negotiations, the 
Board will select and announce what it deems to be the best funding package 
available.  The proposed funding package from International Triangle General 
Trading LLC ('ITGT') for the Company's existing Lemphane Project, as set out in 
the announcements dated 28 January 2015 and 5 May 2015 respectively, also 
remains subject to final negotiation and contract.  As such, the Board may 
agree a funding package for both Mothae, and the Lemphane project with a party 
other than ITGT and on terms that differ from those which have previously been 
announced, but which may prove to be more commercially attractive to 
shareholders overall. 
 
The Board remains confident that the selected funding package for both Mothae 
and Lemphane will be agreed in order to meet the terms of the Acquisition or 
any revisions thereto. 
 
Mr. Simon Retter, Finance Director said: 
 
"Subsequent to the new and positive confirmations provided by The MSA Group 
reports on Mothae, the Board has been intensively and positively refining the 

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