Inter Rock Minerals : Management’s Discussion & Analysis 2021 Q2

INTER-ROCK MINERALS INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Three and Six Months Ended June 30, 2021

August 23, 2021

INTER-ROCK MINERALS INC.

MANAGEMENT'S INTERIM DISCUSSION AND ANALYSIS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021

NOTES TO READER

References to "Inter-Rock" and the "Company" in this discussion refer to Inter-Rock Minerals Inc. and its subsidiaries taken as a whole.

The following management discussion and analysis ("MD&A") provides an analysis of the financial condition of Inter-Rock at June 30, 2021 and compares it to the financial condition of the Company on December 31, 2020. The MD&A also analyzes the Company's results of operations for the three and six months ended June 30, 2021 and compares those results to the results for the comparable periods in 2020.

This MD&A has been prepared in compliance with the requirements of National Instrument ("NI") 51-102 - Continuous Disclosure Obligations. This discussion should be read in conjunction with the unaudited consolidated interim financial statements for the three and six months ended June 30, 2021 and with the audited consolidated financial statements and the related notes for the year ended December 31, 2020. The Company's financial statements and MD&A have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").

All monetary amounts are expressed in United States dollars unless otherwise indicated.

This MD&A is prepared as of August 23, 2021.

DESCRIPTION OF THE BUSINESS

Inter-Rock is domiciled in Canada and is continued under the Business Corporations Act (Ontario). The Company's office is located at 2 Toronto Street, Suite 500 Toronto, Ontario, M5C 2B6, Canada. The Company's shares are traded on the TSX Venture Exchange under the symbol "IRO".

Inter-Rock owns three operating businesses: Papillon Agricultural Company, Inc. ("Papillon"), MIN-AD, Inc. ("MIN-AD") and Mill Creek Dolomite LLC ("Mill Creek"). Papillon is a US based marketer and distributor of toll manufactured premium dairy feed nutritional supplements, including MIN-AD's products. MIN-AD and Mill Creek are engaged in the production and marketing of high purity dolomite, primarily to the animal feed, glass, roofing and aglime industries in the U.S. Further information about Inter-Rock can be found on the Company's website at www.interrockminerals.com.

SECOND QUARTER 2021 RESULTS SUMMARY

• Consolidated revenue of $17.86 million, up 25% from the same period in the prior year (2020 Q2: $14.19 million).
• Gross profit of $2.63 million, the highest level since the fourth quarter of 2019. Generated operating cash flow of $841,000 as compared with $440,000 in Q2 2020.

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• Papillon hired a central plains regional sales manager to broaden its geographic reach and capture the increasing demand for premium nutritional feed solutions.

Milk prices in the U.S. increased in second quarter of 2021. There is, however, significant uncertainty with respect to prices for the balance of the year. To support prices achieved in the second quarter of 2021 for the balance of the year, milk production growth will not only need to decrease, but be accompanied by continued growth in domestic consumption and export volumes. Growth in U.S. milk production thus far in 2021 has been driven by both an increase in herd size and increased output per cow. Higher feed prices (for corn and soybeans) have started to reduce farmer's margins and this should lead to an increase in culling rates and reduced milk output per cow. Margins are also being squeezed by port congestion and higher freight rates. Continued strong domestic consumption of milk products is expected to be sustained by the ongoing reopening of the economy, with conventions, sporting events, restaurants and schools all generating additional demand. In the U.S., a greater volume of dairy products are consumed in restaurants and the food service sector than are consumed at home, so the lifting of capacity restrictions at restaurants and large gatherings should be positive for the dairy sector. Maintaining strong export sales is less certain as growth in China is expected to slow in the second half of 2021.

Papillon continues to experience robust demand for its protein products, in part, due to higher prices for alternative protein additives like soybean meal.

Despite the uncertainty of the length and magnitude of the economic impact of COVID-19, Inter- Rock expects that its available cash and cash flow from operations will be sufficient to meet its operating requirements and financial commitments in 2021.

COVID-19 PANDEMIC

COVID-19 negatively impacted the Company's results, particularly in the second quarter of 2020 at Mill Creek, and could have further negative impacts on the operations of the Company, its suppliers and its customers. Labour quarantines or other disruptions to the Company's operations may impact our ability to provide products to our customers and, as a consequence, negatively impact our revenues and cash flow. Prolonged closures of meat processing facilities may also reduce the availability of a key ingredient in the Company's protein supplements. It is not possible to reliably estimate the length and severity of the economic consequences of the COVID-19 pandemic and the impact on the financial results of the Company.

OPERATIONS REVIEW

Papillon Agricultural

Papillon develops and produces premium specialty nutritional products for dairy consultants, feed suppliers and dairy producers in the United States. Papillon has its own line of high quality proteins and rumen probiotic products that are produced under toll manufacturing agreements. In addition, Papillon distributes MIN-AD products and a clostridia control product for dairy cows (clostridia are bacteria naturally found in the environment and in the gastrointestinal tracts of dairy cows and calves, which under the right conditions can form toxins that result in reduced growth performance and digestive disorders). Most of Papillon's sales are in the northeastern and north central regions of the United States.

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Second quarter 2021 review

Papillon recorded revenue of $16.02 million in the second quarter of 2021, as compared with $12.40 million in the year earlier period. Gross profit in the second quarter of 2021 was $1.92 million, up 32% from $1.46 million for the same period in 2020. The increase in gross profit in the current quarter was attributable to higher revenue, driven by a 21% increase in tons sold of all products in aggregate, and overall higher gross profit margins. Milk prices were, on average, approximately 16% higher in the second quarter of 2021 as compared with the second quarter of 2020.

Cash flow from operating activities (before working capital changes) was $748,000 as compared with $529,000 in the second quarter of 2020.

Six months 2021 review

Revenue in the first six months of 2021 was $31.82 million, up from $24.50 million in the year earlier period. Gross profit for the first half of 2021 increased to $3.61 million as compared with $3.02 million in the first half of 2020. The increase in gross profit was due to a 14% increase in total tons sold, notably a 21% increase in protein sales. Gross profit margins declined slightly in the first half of 2021, as compared with the same period in 2020. Year-to-date cash flow from operating activities was $1.37 million as compared with $1.05 million for the same period in 2020. Higher cash flow in the first half of 2021 was principally attributable to higher sales volumes, particularly of protein products.

Mill Creek

Mill Creek Dolomite, LLC owns and operates a dolomite quarry and plant in Mill Creek, Oklahoma. Mill Creek sells into specialty markets for dolomite, principally the glass, roofing materials, and aglime markets. About 75% of Mill Creek's sales volume is to the glass industry.

Second quarter 2021 review

Tons sold increased by 30% in the second quarter of 2021 as compared with the second quarter of 2020. Volumes in the second quarter of 2020 were significantly impacted by the loss of a glass customer and glass customers reducing inventory in response to COVID-19. As a result of higher sales volumes, Mill Creek's revenue increased to $982,000 in the second quarter of 2021, up from $752,000 in the year earlier period.

Cash flow from operations (before working capital changes) was $156,000 in the second quarter of 2021, as compared with a deficit of $156,000 in the second quarter of 2020.

Payments related to equipment leases (which are recorded as financing payments and thus not netted against operating cash flow) and debt service payments totalled $207,000 in the second quarter of 2021 as compared with $226,000 in the comparable period in 2020.

Mill Creek incurred capital expenditures of $16,000 in the second quarter of 2020 (Q2 2019: $29,000).

Six months 2021 review

For the first six months of 2021, tons sold were slightly lower than the year earlier period. Sales volumes for the first six months of 2021 reflect the return to normal purchasing levels by existing

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glass customers; however, the loss of a large glass customer at the end of the first quarter of 2020 is projected to result in 2021 glass sales volumes of approximately 80 to 85 percent of the level reached in the two years prior to 2020. Revenue of $1.96 million in the first six months of 2021 was similar to the year earlier period.

In the first half of 2021, operating cash flow was $292,000, as compared with a deficit of $68,000 for the comparable period in 2020. The increase in cash flow is largely attributable to lower quarrying and milling costs which reflect cost saving operational changes instituted in the second half of 2020, including reducing crew sizes, reducing shifts in the quarry and operating at times of off-peak power rates.

Mill Creek made payments related to equipment leases and debt service of $454,000 in the first six months of 2021, as compared with $468,000 in the year earlier period.

Capital expenditures in first six months of 2021 were $546,000, (six months 2020: $201,000). The majority of the expenditure in the first half of 2021 was for purchasing a new haul truck to replace a truck at the end of its lease term.

Capital expenditures will increase in the third quarter as Mill Creek replaces leased mining equipment with purchased equipment.

MIN-AD

MIN-AD quarries, processes, and markets a specialty dolomite for the dairy and beef cattle feed industry. The dolomite is used as a source of magnesium and calcium and as a rumen acid buffer. Approximately 95% of sales are to the United States, while the other 5% are to Alberta. MIN-AD's quarry and grinding plant are located in northern Nevada near the town of Winnemucca.

MIN-AD's sales and marketing activities are managed by Papillon. In the northeast, central Atlantic and upper mid-west regions of the U.S., Papillon acts as the exclusive distributor of MIN- AD's products, which are purchased by Papillon and then sold to dairy feed manufacturers. This arrangement takes advantage of Papillon's marketing and sales expertise and geographic reach in the eastern United States. Papillion also acts as a sales agent for MIN-AD's products in parts of the mid-west and western United States. In the first half of 2021, 47% of MIN-AD's sales revenue was attributed to inter-company sales to Papillon.

Second quarter 2021 review

MIN-AD's tons sold in the second quarter of 2021 were 8% below the level recorded in the corresponding quarter of 2020. Revenue (including freight and fuel charged to customers) of $1.73 million in the second quarter of 2021, decreased approximately 3% from the prior year period ($1.79 million). MIN-AD's sales were impacted by the drought in the western U.S.

Cash flow from operations (before working capital changes) was $65,000 in the second quarter of 2021, as compared with $128,000 in the same period in 2020. The reduction in cash flow was attributable to lower sales, coupled with higher plant expenses and higher costs for freight and freight related items.

MIN-AD's payments related to rail car leases and debt service totalled approximately $51,000 in the second quarter of 2021, unchanged from the same period in 2020. MIN-AD incurred capital expenditures of $118,000 in the second quarter of 2021 (Q2 2020: 43,000).

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