Inter Rock Minerals : Management’s Discussion & Analysis 2022 Q3

INTER-ROCK MINERALS INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Three and Nine Months Ended September 30, 2022

November 16, 2022

INTER-ROCK MINERALS INC.

MANAGEMENT'S INTERIM DISCUSSION AND ANALYSIS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 September 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 nine months ended September 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 nine months ended September 30, 2022 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 November 16, 2022.

Inter-Rock uses earnings before interest, taxes and depreciation and amortization ("EBITDA"), a non-IFRS performance measure in this MD&A as it believes this generally accepted industry performance measure provides a useful indication of the Company's financial performance. This non-IFRS performance measure does not have a standardized meaning defined by IFRS and may not be comparable to information in the reports and filings of comparable companies. Accordingly, it should not be considered in isolation or as a substitute for performance measures prepared in accordance with IFRS.

For further information and a detailed reconciliation, refer to the section entitled "Non-IFRS Performance Measures" in this MD&A.

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.

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

THIRD QUARTER 2022 RESULTS SUMMARY

• Record consolidated revenue of $26.43 million, up 70% from the same period in the prior year (2021 Q3: $15.59 million).
• Gross profit of $3.29 million, 53% higher than the prior year quarter and third consecutive quarter of increasing gross profit. Generated EBITDA of $1.67 million as compared with $778,000 in Q3 2021.
• Total debt reduced to $484,000.

High operating costs for U.S. dairies limited the growth of milk production and sustained high milk prices from the fourth quarter of 2021 to the beginning of the third quarter of 2022. Average milk prices in the third quarter of 2022 were lower than the record second quarter prices, but remain relatively high. Milk production started to increase in the third quarter of 2022 as compared with the prior year; however, continuing strong domestic and export demand for dairy products supported prices. It is not clear if retail price inflation will impact demand for dairy products in the U.S., nevertheless, the impact is typically not great.

The Company expects to continue to benefit from a robust dairy market despite a difficult, although improving, freight market and Papillon facing rapidly changing raw ingredient costs.

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).

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Third quarter 2022 review

Papillon's third quarter 2022 results reflect continued strong dairy market conditions in the United States. Papillon recorded revenue of $25.43 million in the third quarter of 2022, as compared with $14.74 million in the year earlier period. The increase in revenue is attributable, in part, to a 12% increase in tons sold of all products in aggregate. Papillon's revenue is also materially impacted by changes in ingredient costs for its protein products. As Papillon targets a set gross profit per ton, revenue fluctuates commensurately with changes in ingredient costs, as sales prices are adjusted regularly to maintain gross margins. Accordingly, gross profit can better reflect financial performance than revenue.

Gross profit of $2.89 million in the third quarter of 2022 was up 64% from $1.77 million for the same period in 2021. All Papillon's principal products generated equal or 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 a 12% increase in tons sold of all products and higher margins on protein products. Although protein margins were higher, Papillon's aggregate gross profit margin in the third quarter of 2022 was 11.3%, down from 12.2% in the year earlier period. Higher sales and revenue more than offset lower gross profit margins.

Gross profit and gross profit margins in the third quarter of 2022 were higher than the second quarter of 2022, despite sales volumes falling 9% quarter over quarter.

Cash flow from operating activities (net of management fees paid to Inter-Rock and before working capital changes) was $1.57 million in the third quarter of 2022 as compared with $591,000 in the third quarter of 2021. Higher sales and a $816,000 increase in gross profit more than offset an increase in general and administrative expenses.

Nine months 2022 review

Revenue in the first nine months of 2022 was $64.78 million, up from $46.57 million in the year earlier period. Gross profit for the first nine months of 2022 increased to $6.94 million as compared with $5.38 million for the comparable period in 2021. The increase in gross profit was due to an 10% increase in total tons sold, which offset a slight decline in gross profit margins in the first nine months of 2022. Year-to-date cash flow from operating activities increased to $3.04 million, as compared with $1.96 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 operation is 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

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the first nine months of 2022, 47% of MIN-AD's sales revenue was attributed to inter-company sales to Papillon.

Third quarter 2022 review

MIN-AD recorded revenue (including freight and fuel charged to customers) of $2.20 million in the third quarter of 2022, a 35% increase from the prior year period ($1.63 million). Higher revenue in the current quarter is attributable to a 38% increase in tons sold as compared with the corresponding quarter in 2021 and reflect, in part, sales to a new industrial (non-agricultural) customer. Results in the prior year period were negatively impacted by drought in the western U.S. Revenue in the third quarter of 2022 was slightly lower than revenue of $2.38 million in the second quarter of 2022.

Although third quarter 2022 revenue increased 35% as compared with the prior year period, gross profits were just 8% higher as profit margins were reduced as a result of higher freight expenses, which was partially attributable to transporting a greater proportion of MIN-AD's products by truck due to rail service disruptions.

Cash flow from operations (net of management fees paid to Inter-Rock and before working capital changes) was $114,000 in the third quarter of 2022, down from $149,000 in the same period in 2021. Operating cash flow in the current quarter was negatively impacted by the reduction in gross profit margins and higher administrative expenses.

Payments for rail car leases (recorded as financing payments, consequently not netted against cash flow from operations) totalled approximately $44,000 in the third quarter of 2022, unchanged from the prior year period.

MIN-AD incurred capital expenditures of $126,000 in the third quarter of 2022 (Q3 2021: $112,000).

Nine months 2022 review

For the first nine months of 2022, MIN-AD's sales volume and revenue were above levels recorded in the prior year period by 21% and 27% percent respectively. In the first nine months of 2022, MIN-AD recorded revenue of $6.59 million, as compared with $5.18 million in the first nine months of 2021 (excluding $150,000 of inter-company dividend income).

Cash flow from operations was $428,000 in the first nine months of 2022, up from $300,000 in the prior year period. The increase in cash flow in the current year period is due to higher gross profits resulting from increased sales revenue, which more than offset higher general and administrative expenses.

Rail car lease payments were $131,000 in the first nine months of 2022, up marginally from $125,000 in the prior year period.

MIN-AD incurred capital expenditures of $405,000 in the first nine months of the year (nine months of 2021: $270,000). Approximately 30% of the capital expenditures were related to the development of MIN-AD's clay project. The clay is mined and processed by MIN-AD and is sold as an anti caking agent for use in beef and dairy cow feed.

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