PARAGON DIAMONDS LTD: Audited Final Results

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
      * 
      + Successfully undertook 300 carat bulk sampling programme at Lemphane,
        early 2013 and achieved US$2,400 per carat valuation for an individual
        diamond
       
      + 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
       
      + 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
       
      + 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
       
      + MOU signed for a 75 tonne per hour processing plant which will
        significantly increase production capacity at Lemphane
       
      + 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
      * 
      + 85% owned high-grade Motete Kimberlite dyke in Lesotho which has a
        resource of 1.56Mt at 65cpht for 1M carats
       
      + Kaplamp project in Zambia which hosts 14 Lamproite pipes within a
        well-known diamondiferous region
       
      + 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 Letšeng, such as a coarse
diamond size frequency and Type IIa diamonds. Letšeng 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 Letšeng 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                     (558)           -
financial instrument                                                            
                                                                           
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                      (1,555)     (2,031) 
                                                                           
foreign operations                                                              
                                                                           
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   Share  Foreign   Share Retained   Total Non-controlling        Total 
                  capital premium exchange   based  deficit               
interests attributable 


                                       reserve payment                          
        to owners of
                                               reserve                          
              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        -       -  (1,882)       -        - (1,882)         
  (149)      (2,031)
on translation of                                                                
                
foreign operations                                                               


                    
                                                                                


                
Total comprehensive         -       -  (1,882)       -  (4,881) (6,763)         
  (336)      (7,099)
income for the year                                                              


                    
                                                                                


                
Issue of shares            69   1,938        -       -        -   2,007          


      -        2,007
                                                                                


                
Share based payment         -       -        -     181        -     181          


      -          181
                                                                                


                
Transfer of share           -       -        -    (13)       13       -          
  -            -
based payment charge                                                             


                    
                                                                                


                
Arising on                  -       -        -       -       81      81         
  (354)        (273)
acquisition of                                                                   
                
non-controlling                                                                  
                
interest                                                                         


                    
                                                                                


                
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        -       -  (1,597)       -        - (1,597)          
 42      (1,555)
on translation of                                                                
                
foreign operations                                                               


                    
                                                                                


                
Total comprehensive         -       -  (1,597)       -  (1,321) (2,918)          
 42      (2,876)
income for the year                                                              


                    
                                                                                


                
Issue of shares           935   2,352        -       -        -   3,287          


      -        3,287
                                                                                


                
Expenses on issue of        -    (66)        -       -        -    (66)          
  -         (66)
shares                                                                           


                    
                                                                                


                
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                      40,635        41,151
assets                                                                          
                                                                           
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                   27,694        27,211
parent                                                                          
                                                                           
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                    46         (11)      
receivables                                                                     
                                                                           
Increase in inventory                                     (38)       -          
                                                                           
(Decrease)/increase in trade and other                    (80)       227       
payables                                                                        
                                                                           
Fair value loss on remeasuring derivative                 558        -         
financial instrument                                                            
                                                                           
NET CASH OUTFLOW FROM CONTINUING OPERATIONS               (590)      (670)      
                                                                           
NET CASH OUTFLOW FROM DISCONTINUED                        -          (282)     
OPERATIONS                                                                      
                                                                           
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                        221        -         
instrument                                                                      
                                                                           
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                 492        1,238     
year                                                                            
                                                                           
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     
END 
-0- May/23/2014 06:00 GMT
 
 
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