Inter Rock Minerals : Management’s Discussion & Analysis 2021 Q3

INTER-ROCK MINERALS INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Three and Nine Months Ended September 30, 2021

November 24, 2021

INTER-ROCK MINERALS INC.

MANAGEMENT'S INTERIM DISCUSSION AND ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 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 nine months ended September 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 nine months ended September 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 November 24, 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.

THIRD QUARTER 2021 RESULTS SUMMARY

• Consolidated revenue of $16.61 million, up 38% from the same period in the prior year (Q3 2020: $12.07 million).
• Gross profit of $2.63 million for the second consecutive quarter and the highest level since the fourth quarter of 2019 (Q3 2020: $2.59 million). Generated operating cash flow of $890,000 as compared with $1.17 million in Q3 2020.

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• Papillon's sales volumes increased 7% in the third quarter (and 11% for nine months of 2021), as compared with the corresponding period in 2020.

Strong domestic and export demand for U.S. dairy products is expected to continue for the balance of 2021 and into 2022. Domestic consumption of milk products is expected to be sustained by seasonal factors, including the Thanksgiving and Christmas holidays and the continuing reopening of the economy. 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. On the supply side, inflation is impacting dairy output. In particular, prices for dairy feed, principally corn and soybeans are significantly higher as a result of drought conditions in key growing regions and substantial imports by the Chinese to rebuild their hog industry. Higher energy costs are also reducing farmer's margins, as are labour shortages and higher costs for commodities used for construction projects at dairy farms. Reduced margins have led to an increase in herd culling rates.

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 for the next twelve months.

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 and Canada. 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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Third quarter 2021 review

Papillon recorded revenue of $14.74 million in the third quarter of 2021, as compared with $9.99 million in the year earlier period. Gross profit in the third quarter of 2021 was $1.77 million, up 7% from $1.65 million for the same period in 2020. The increase in gross profit in the current quarter was attributable to higher revenue, driven by a 7% increase in tons sold of all products in aggregate, which offset lower gross profit margins.

Cash flow from operating activities (before working capital changes) was $591,000 as compared with $633,000 in the third quarter of 2020. The reduction in cash flow is attributable to higher SG&A expense, which more than offset the increase in gross profit.

Nine months 2021 review

Revenue in the first nine months of 2021 was $46.57 million, up from $34.49 million in the year earlier period. Gross profit for the first three quarters of 2021 increased to $5.38 million as compared with $4.67 million in the same period of 2020. The increase in gross profit was due to an 11% increase in total tons sold, notably an 18% increase in protein sales. The increase in protein sales offset lower gross profit margins and lower sales of MIN-AD's products. Milk prices were, on average, approximately 4% lower in the first nine months of 2021 as compared with the corresponding period in 2020.

Year-to-date cash flow from operating activities was $1.96 million as compared with $1.68 million for the same period in 2020. Higher cash flow in the first nine of 2021 was principally attributable to higher sales volumes, particularly of protein products, which offset a 15% increase in SG&A expenses, primarily related to payroll costs for additional staff and higher sales performance bonuses.

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.

Third quarter 2021 review

Tons sold decreased by 13% in the third quarter of 2021 as compared with the third quarter of 2020; however, sales to glass customers, which are higher margin than sales of aglime, were only slightly lower in the current quarter. As a result, revenue of $1.02 million in the third quarter of 2021 was only 4% below revenue of $1.06 million recorded in the comparable period in 2020.

Cash flow from operations (before working capital changes) was $209,000 in the third quarter of 2021, as compared with $285,000 in the third 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 $230,000 in the third quarter of 2021 as compared with $228,000 in the comparable period in 2020.

Mill Creek incurred capital expenditures of $1.1 million in the third quarter of 2021 (Q3 2020: $43,000). Capital expenditures in the current quarter were related to the purchase of mobile mine equipment. Some of the equipment purchased was previously operated by Mill Creek under lease contracts.

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Nine months 2021 review

For the first nine months of 2021, total tons sold were 9% lower than the year earlier period, as a result of lower sales to the roofing market. Sales of glass grade material were largely unchanged and represented 74% of overall sales volume, as compared with 69% in the first three quarters of 2020. Sales volumes for the first nine months of 2021 reflect the return to normal purchasing levels by existing glass customers; however, the loss of a large glass customer in 2020 is projected to result in 2021 glass sales volumes of approximately 80% to 85% of the level reached in the two years prior to 2020. Revenue of $2.98 million in the first nine months of 2021 was similar to the year earlier period ($3.02 million).

In the first nine months of 2021, operating cash flow was $501,000, as compared with $217,000 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.

Mill Creek made payments related to equipment leases and debt service of $681,000 in the first nine months of 2021, as compared with $692,000 in the year earlier period.

Capital expenditures in first nine months of 2021 were $1.65 million, (nine months 2020: $244,000). The majority of the expenditures in the first nine months of 2021 were for purchasing mine equipment, including haul trucks, front end loaders and an excavator.

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 nine months of 2021, 34% and 45% of MIN-AD's tons sold and sales revenue respectively, were attributed to inter-company sales to Papillon.

Third quarter 2021 review

MIN-AD's tons sold in the third quarter of 2021 were 16% below the level recorded in the corresponding quarter of 2020. Revenue (including freight and fuel surcharges) of $1.67 million in the third quarter of 2021, decreased approximately 8% from the prior year period ($1.78 million). Sales volumes were impacted by the drought and heat in the western U.S.

Cash flow from operations (before working capital changes) was $149,000 in the third quarter of 2021, as compared with $223,000 in the same period in 2020. The reduction in cash flow was primarily attributable to lower sales.

MIN-AD's payments related to rail car leases and debt service totalled approximately $55,000 in the third quarter of 2021, up from $51,000 in the same period in 2020.

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