Inter Rock Minerals : Management’s Discussion & Analysis 2022 Q2

INTER-ROCK MINERALS INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Three and Six Months Ended June 30, 2022

August 23, 2022

INTER-ROCK MINERALS INC.

MANAGEMENT'S INTERIM DISCUSSION AND ANALYSIS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022

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, 2022 and compares it to the financial condition of the Company on December 31, 2021. The MD&A also analyzes the Company's results of operations for the three and six months ended June 30, 2022 and compares those results to the results for the comparable periods in 2021.

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, 2021. 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, 2022.

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 two operating businesses: Papillon Agricultural Company Inc. ("Papillon") and MIN-AD Inc. ("MIN-AD"). Papillon is a US based marketer and distributor of toll manufactured premium dairy feed nutritional products, including MIN-AD's products. MIN-AD is engaged in the production and marketing of dolomite and clay products for the animal feed industry.

In February of 2022, Inter-Rock sold its Mill Creek dolomite operation as part of its strategy to focus on its animal feed nutritional supplement businesses. Mill Creek was sold to United States Lime & Minerals Inc., ("USLM") for U.S.$6.40 million in cash, excluding all Mill Creek debt and accrued interest of U.S.$2.24 million that was repaid at closing with a portion of the sale proceeds. After the repayment of debt and adjustments to the sale price for working capital, the Company received net cash of U.S.$3.31 million.

In accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, at December 31, 2021, all assets and liabilities related to Mill Creek were classified as held for sale and were presented as current assets and current liabilities on the consolidated balance sheet. Additionally, results of operations for Mill Creek have been separated from the results of

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continuing operations and are presented as discontinued operations on the Company's consolidated statement of net and comprehensive income for the six months ended June 30, 2022 and June 30, 2021.

SECOND QUARTER 2022 RESULTS SUMMARY

• Consolidated revenue of $24.17 million, up 43% from the same period in the prior year (2021 Q2: $16.88 million).
• Gross profit of $2.75 million, 30% higher than the quarterly average of the preceding seven quarters. Generated operating cash flow of $878,000 as compared with $685,000 in Q2 2021.
• Total debt reduced to $688,000.
• Papillon entered a manufacturing partnership with Scoular, a large U.S. agricultural company, that will make Papillon's protein products available to dairy farmers in the Pacific Northwest. Under the partnership, Scoular expanded their existing feed blending facility in Idaho.

Milk prices in the United States were at multi year highs during the first half of 2022 and have been strong for the past twelve months. Prices are supported by a declining herd size, particularly in 2021 and the first quarter of 2022, although there was a modest increase in the second quarter of the year. In addition, milk production per cow has declined. On the demand side, domestic consumption of dairy products, notably cheese and butter has rebounded with the reopening of schools, restaurants and travel. The export market for dairy products also remains strong.

Higher milk prices typically stimulate a fairly rapid increase in milk supply; however, there are currently a number of factors that may limit the supply expansion. Farmers are contending with significantly higher operating costs. Feed prices, in particular, are well above the historical average. Similarly, equipment and labour costs have continued to increase materially in the past five years. Labour shortages and longer lead times for equipment may also limit the rate of expansion of milk supply. In the short term, these factors are expected to limit the growth of herds and thus milk production, which should help support milk prices. Nonetheless, a recession would dampen demand as customers eat out less and spend less on dairy products.

Despite the Company's subsidiaries dealing with ongoing freight disruptions and Papillon facing rapidly changing raw ingredient costs, the Company expects to continue to benefit from a robust dairy market in the second half of 2022.

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

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cows and calves, which under the right conditions can form toxins that result in reduced growth performance and digestive disorders).

Second quarter 2022 review

Papillon's operational and financial performance in the second quarter of 2022 reflects strong dairy market conditions in the United States. Papillon recorded revenue of $22.88 million in the second quarter of 2022, as compared with $16.02 million in the year earlier period. Gross profit of $2.20 million in the second quarter of 2022 was up 15% from $1.92 million for the same period in 2021. Gross profit in the second quarter was also higher than in the first quarter of 2022 (Q1 2022 gross profit: $1.85 million). All of Papillon's principal products generated higher gross profits in the current quarter as compared with the corresponding period in 2021. The increase in gross profit in the current quarter was attributable to higher revenue, which, in turn, was due to a 12% increase in tons sold of all products in aggregate. Higher sales and revenue more than offset lower gross profit margins. Papillon's gross profit margin in the second quarter of 2022 was 9.9%, down from 12.3% in the year earlier period. Freight disruptions and a tight supply of raw ingredients, which caused prices to rapidly increase, made it difficult to maintain typical gross margins.

Cash flow from operating activities (before working capital changes) was $894,000 as compared with $748,000 in the second quarter of 2021.

Six months 2022 review

Revenue in the first six months of 2022 was $39.36 million, up from $31.82 million in the year earlier period. Gross profit for the first half of 2022 increased to $4.05 million as compared with $3.61 million in the first half of 2021. The increase in gross profit was due to an 8% increase in total tons sold, notably a 10% increase in protein sales. Protein sales typically account for more than half of Papillon's gross profits. Gross profit margins declined slightly in the first half of 2022, as compared with the same period in 2021. Year-to-date cash flow from operating activities was $1.48 million as compared with $1.37 million for the same period in 2021.

MIN-AD

MIN-AD quarries, processes, and markets dolomite and clay products for dairy and beef cattle feed. The dolomite is used as a source of magnesium and calcium and as a rumen acid buffer. MIN-AD's newly developed clay business produces products for use in anti-caking and toxin control applications. MIN-AD's operations are located in northern Nevada near the town of Winnemucca. Approximately 95% of sales are to the United States, while the other 5% are to Alberta and British Columbia.

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. Under a distribution agreement, MIN-AD products are purchased by Papillon and then sold by Papillon to dairy feed manufacturers. This arrangement takes advantage of Papillon's marketing and sales expertise and geographic reach in the eastern United States. In the first half of 2022, 44% of MIN-AD's sales revenue was attributed to inter-company sales to Papillon.

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Second quarter 2022 review

MIN-AD recorded revenue (including freight and fuel charged to customers) of $2.38 million in the second quarter of 2022, a 38% increase from the prior year period ($1.73 million). Higher revenue in the current quarter is attributable to a 35% increase in tons sold as compared with the corresponding quarter in 2021. Results in the prior year period were negatively impacted by drought in the western U.S. Revenue in the second quarter of 2022 was also higher than revenue of $2.01 million in the first quarter of 2022.

Cash flow from operations (before working capital changes) was $264,000 in the second quarter of 2022, as compared with $65,000 in the same period in 2021. The increase in cash flow was attributable to higher sales. Payments for rail car leases (recorded as financing payments, consequently not netted against cash flow from operations) totalled approximately $44,000 in the second quarter of 2022, unchanged from the prior year period.

MIN-AD incurred capital expenditures of $133,000 in the second quarter of 2022 (Q2 2021: $118,000).

Six months 2022 review

For the first six months of 2022, MIN-AD's sales volume and revenue were above levels recorded in the prior year period by 35% and 24% percent respectively. In the first half of 2022, MIN-AD recorded revenue of $4.39 million, as compared with $3.55 million first half of 2021 (excluding $150,000 of inter-company dividend income).

Cash flow from operations (before working capital changes) was $314,000 in the first six months of 2022, up from $151,000 the prior year period. The increase in cash flow in the current period is due to higher gross profits resulting from increased sales, which more than offset higher general and administrative expenses. Rail car lease payments were $87,000 in the first half of 2022, up from $81,000 in the prior year period.

MIN-AD incurred capital expenditures of $277,000 in the first six months of the year (six months of 2021: $158,000). Approximately one third of the capital expenditures in the first half of 2022 was related to the development of MIN-AD's clay project.

CONSOLIDATED FINANCIAL REVIEW

(US$,000)	Three Months Ended	Six Months Ended
	June 30, 2022	June 30, 2021	June 30, 2022	June 30, 2021
Revenue	$24,173	$16,878	$41,726	$33,749
Operating costs	$21,422	$14,665	$36,764	$29,526
Gross profit	$2,751	$2,213	$4,962	$4,223
SG&A	$1,566	$1,455	$3,222	$2,670
Net income (Loss)	$369	$668	$1,209	$1,074
Income per share, basic	$0.02	$0.03	$0.05	$0.05
Cash flow from operations1	$878	$685	$1,358	$1,450
Capital expenditures	$137	$117	$277	$157

1Before working capital changes.

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