Inter Rock Minerals : Management’s Discussion & Analysis 2023 Q1

INTER-ROCK MINERALS INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the Quarter Ended March 31, 2023

May 16, 2023

INTER-ROCK MINERALS INC.

MANAGEMENT'S INTERIM DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED MARCH 31, 2023

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 March 31, 2023 and compares it to the financial condition of the Company on December 31, 2022. The MD&A also analyzes the Company's results of operations for the three-month period ending March 31, 2023 and compares those results to the results for the comparable period in 2022.

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 months ended March 31, 2023 and with the audited consolidated financial statements and the related notes for the year ended December 31, 2022. 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 was prepared as of May 16, 2023.

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 in the United States: Papillon Agricultural Company Inc. ("Papillon") and MIN-AD Inc. ("MIN-AD"). Papillon develops, markets and distributes toll manufactured premium dairy feed nutritional supplements, including MIN-AD's products. MIN-

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AD is engaged in the production and marketing of dolomite and clay products primarily 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.$6.4 million in cash, excluding all Mill Creek debt and accrued interest of U.S.$2.2 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.$3.3 million.

FIRST QUARTER 2023 RESULTS HIGHLIGHTS

• Gross profit of $2.8 million and EBITDA of $1.1 million, both equal to their respective rolling four quarter averages.
• Repaid all bank debt.
• Finalized planning and design for a new robotic bagging system at the MIN-AD plant.

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, certain strains of which can form toxins that result in reduced growth performance and digestive disorders).

Papillon's performance in the first quarter of 2023 reflects continued strong domestic and export demand for dairy products. Higher farmgate milk prices allow dairies to continue to include feed additives in the diet. Papillon added new protein customers in the expanding markets of the Pacific northwest and central plains. Additionally, Papillon's sales of MIN-AD have benefitted from positive, independent research test results.

Papillon recorded revenue of $20.8 million in the first quarter of 2023, as compared with revenue of $16.5 million in the year earlier period. Gross profit in the first quarter of 2023 increased by 28% to $2.4 million (2022 Q1: $1.9 million) and was just above the $2.2 million of gross profit in the fourth quarter of 2022. All Papillon's products generated higher gross profits in the current quarter, with the exception of sales of MIN-AD's products (although sales volumes of MIN-AD increased by 30% in the first quarter of 2023, gross profit margins declined). Higher gross profit was attributable to a 4% increase in volume of all products sold in aggregate and an increase in the gross profit margin of protein product sales (protein products accounted for 74% of total sales volume). Overall gross profit margins of 11.7% in the first quarter of 2023 were unchanged from the prior year period.

In the first quarter of 2023, Papillon's cash flow from operating activities was $927,000 (before working capital changes and net of management fees paid to Inter-Rock), as compared with $572,000 in the first quarter of 2022. Cash flow in the current quarter reflects higher gross profit

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of approximately $510,000, which more than offset an increase in SG&A expense of about $158,000. SG&A was higher due to increased payroll costs attributable to staff increases and additional expenditures for travel and management fees paid to Inter-Rock.

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 quarter of 2023, 50% of MIN-AD's sales revenue was attributed to inter-company sales to Papillon.

Papillion also acts as a sales agent for MIN-AD's products in regions of the U.S. not covered by the exclusive distribution agreement, primarily the mid-west and western states. Papillon is paid a commission by MIN-AD for tons sold under a sales agent agreement.

MIN-AD recorded revenue (including freight and fuel surcharges to customers) of $2.6 million in the first quarter of 2023, an increase of 30% from the prior year period ($2.0 million). Revenue increased in the current quarter as a result of a 37% increase in sales volumes. Sales volumes in the first quarter of 2022 were negatively impacted by mechanical problems in the processing plant. Just under one third of the increase in revenue was attributable to an increase in sales to an industrial (non-agricultural) customer.

As a result of higher sales volumes, cash flow from operations in the first quarter of 2023 increased to $122,000 (before working capital changes and net of management fees paid to Inter- Rock), up from $51,000 in the first quarter of 2022.

Payments related to rail car leases totalled $45,000 in the first quarter of 2023, unchanged from the prior year period. (Lease payments are recorded as financing payments and thus not netted against operating cash flow).

MIN-AD incurred $228,000 in capital expenditures in the first quarter of 2023, as compared with $140,000 in the prior year quarter.

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CONSOLIDATED FINANCIAL REVIEW

	Three Months Ended	Three Months Ended
(US$,000)	March 31, 2023	March 31, 2022
Revenue	$22,058	$17,553
Operating costs	$19,252	$15,342
Gross profit	$2,806	$2,211
SG&A	$1,691	$1,656
Net income (Loss)1	$657	$840
Income per share, basic	$0.03	$0.04
Cash flow from operations1	$880	$256
EBITDA2	$1,115	$555

1. From continuing operations. Cash flow is after working capital changes.
2. See Non-IFRS Performance Measures

Review of First Quarter 2023 Financial Results

Inter-Rock recorded consolidated revenue of $22.1 million for the first quarter of 2023, as compared with $17.6 million for the corresponding period in 2022. The increase in revenue is attributable to higher sales volumes at Papillon and MIN-AD. Papillon accounted for approximately 94% of the Company's consolidated revenue in the first quarter of 2023.

Gross profit in the first quarter of 2023 increased by 27% to $2.8 million, as compared with $2.2 million in the first quarter of 2022. The majority of the increase in gross profit was attributable to higher sales at Papillon and improved gross profit margins for Papillon's protein products. The Company's consolidated gross profit margin in the first quarter of 2023 was 12.7%, as compared to 12.6% in the same period in 2022.

Selling, general and administrative, ("SG&A") costs in the first quarter of 2023 were $1.7 million, unchanged from the prior year period. SG&A costs include all administrative, sales and marketing costs for the Company's two operating subsidiaries, as well as the Toronto office general and administrative costs.

Interest expense comprises interest on debt and interest recognized on lease liabilities. In the first quarter of 2023, interest expense was $15,000, down from $32,000 in the year earlier quarter. Lower interest expense was attributable to a reduction in debt.

During the quarter ended March 31, 2023, the Company recognized a current tax expense of $200,000 as compared with a current tax expense of $75,000 in the prior year quarter.

Inter-Rock reported net income from continuing operations of $657,000 for the first quarter of 2023, as compared with a net income of $840,000 for the same period in 2022. The reduction in net income is partially attributable to a higher provision for income tax expense in the current quarter.

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