Labrador Iron Mines : Management's Discussion & Analysis

LABRADOR IRON MINES HOLDINGS LIMITED

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2022

Dated: August 11, 2022

GENERAL

This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited condensed interim consolidated financial statements and notes thereto of Labrador Iron Mines Holdings Limited (collectively, with its subsidiaries, the "Company") for the three months ended June 30, 2022.

All currency amounts in this discussion are expressed in Canadian dollars, unless otherwise indicated. All references to tonnes are dry metric tonnes ("dmt"), unless otherwise indicated. All numerical references to years are "calendar" years, unless otherwise indicated.

This MD&A contains forward-looking statements.

OVERVIEW

Labrador Iron Mines Holdings Limited ("LIMH"), through its majority owned subsidiaries Labrador Iron Mines Limited ("LIM") and Schefferville Mines Inc. ("SMI"), is engaged in the exploration and development of iron ore projects, situated in the Menihek area of western Newfoundland and Labrador and northeastern Quebec, near the town of Schefferville, in the central part of the Labrador Trough region of eastern Canada, one of the major iron ore producing regions in the world.

The Company's current focus is planning activities related to advancing the Houston Project, LIM's flagship property. The Houston Project is an open pit direct shipping iron ore project located near the town of Schefferville, on which an updated, independent Preliminary Economic Assessment ("PEA") was completed in February 2021 and demonstrated production of 2 million dmt of DSO per year, with an initial 12-year mine life, for total production of 23.4 million dmt of product at 62.2% Fe over the life of the mine.

The Houston Project offers low technical risk, with only building a short gravel road and rail siding as the principal construction components. The Houston Project's deposits 1 and 2 have undergone extensive regulatory review and approval and are considered ready for construction with a one-year construction period to production. Planned operations will involve conventional open pit truck and shovel activities and simple dry crushing and screening for processing.

LIM is advancing development of the Houston Project through a number of initiatives, including: discussing an off- take agreement, including construction financing and product sale components with a potential off-take partner; advancing commercial negotiations with construction contractors, equipment vendors, rail, port and logistics counterparties; and planning metallurgical test work of drill core collected from the Houston Project in a 2013 bulk sample, to refine the product characterization and specifications which will be helpful in marketing the iron ore.

In order to fund these near term initiatives and provide ongoing working capital, the Company is working to complete a strategic investment of approximately $5 million by Scully Royalty Ltd., as further described below.

The independent PEA prepared by Roscoe Postle Associates Inc ("RPA"), now part of SLR Consulting Ltd., supports LIM's plan to resume iron ore production from its next phase Houston Project with low re-start capital and robust economics at a time when the global iron ore markets are strong. The PEA estimates initial direct capital costs of $51.3 million, and along with indirect costs, engineering, procurement and construction management (EPCM) costs, owner's costs and contingency, total initial capital expenditures of $86.8 million. The initial capital intensity at only US$33 per annual tonne of production is considered low by industry standards.

Based on the assumptions used, the PEA estimates the Houston Project will generate an undiscounted net cash flow of $234 million and an after-tax net present value at an 8% discount rate ("NPV8%") of $109 million and an after-tax internal rate of return ("IRR") of 39%, under the base case US$90/dmt (62% Fe Sinter Fines CFR China basis) benchmark pricing model.

To finance the capital cots of the Houston project various future construction financing alternatives are being considered including an advance payment component of an off-take agreement; equipment leasing arrangements; potential project partners; potential government development agencies participation; and potential debt and equity financing.

LIM completed the reclamation of its former James Mine and Silver Yards processing facility during the summer of 2021. LIM has now successfully completed all its environmental regulatory requirements relating to rehabilitation of the former James Mine and Silver Yards processing site and related infrastructure, and in February 2022obtained release of the final remaining $1 million of financial assurance related to the rehabilitation.

The Company also continues to conduct the expenditures required to maintain its various mineral claims in good standing.

STRATEGIC INVESTMENT BY SCULLY ROYALTY LTD.

On July 5, 2022, the Company entered into an agreement for a US$4,000,000 strategic investment by Scully Royalty Ltd. ("Scully").

The strategic investment consists of a US$3,000,000 equity component alongside a US$1,000,000 convertible credit facility. Scully has agreed to subscribe for 13,043,478 common shares of the Company at a price of US$0.23 per share, for gross proceeds of US$3,000,000, and become a strategic shareholder, holding approximately 7.4% of the Company's shares on closing. In addition, through a subsidiary, Scully will provide an unsecured, convertible, US$1,000,000 credit line to the Company, with a five-year term, at an interest rate of 6.8%, and convertible at US$0.31 per share, among other standard terms and conditions.

Additionally, LIM, the operating subsidiary of the Company, will establish Labrador Iron Mines Limited Partnership ("LIMLP"), which will hold and develop the Houston Project. LIM will be the General Partner and project operator and a subsidiary of Scully will be the Limited Partner of LIMLP. Scully will have the first right to propose Project Debt Financing for the development of the Houston Project.

In connection with the strategic investment, Scully will be granted certain rights, including the nomination of one director to the Board of the Company, participation rights in any future financing to enable Scully to maintain its ownership interest, and various other reporting rights and covenants.

Closing of the strategic investment is subject to customary closing conditions and is expected to occur by the end of August 2022.

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LIM's HOUSTON DSO PROJECT

The Houston Project consists of the Houston 1, 2 and 3 deposits located in Newfoundland and Labrador and the adjacent Malcolm deposit located just over the provincial border in Quebec, collectively about 15 kilometres from Schefferville and about 10 kilometres south of LIM's former James Mine.

The Houston 1 and 2 deposits have been permitted and are considered ready for construction. The Houston 3 and Malcolm deposits are planned to come on stream in the second half of the mine life, following permitting.

In 2012, following the submission of a project registration to the Government of Newfoundland and Labrador for the development of the Houston 1 and 2 deposits, including a haul road and a new railway siding, the Minister of Environment and Conservation informed the Company that, in accordance with the Environmental Protection Act, the Houston 1 and 2 Deposits Mining Project was released from further environmental assessment, subject to a number of conditions.

The Closure and Rehabilitation Plan for the Houston 1 and Houston 2 deposits has been approved to allow for initial development. In order to fully develop the Houston Project, the Closure and Rehabilitation Plan for the Houston 3 deposit must be approved by the Newfoundland Department of Natural Resources. The Malcolm deposit, included in the Houston project, has not been permitted by the Province of Quebec and is proposed to be developed in the second half of the project mine life.

The Company's Schefferville Projects are connected by a direct rail line to the Port of Sept-Iles on the Atlantic Ocean and benefit from established infrastructure, including the town of Schefferville, an airport, roads, hydro power and rail service.

LIM has existing life-of-mine rail agreements with Tshiuetin ("TSH") railway and Quebec North Shore and Labrador Railway ("QNS&L") for the transport of iron ore across the 235 km TSH railway and the 350 km QNS&L railway to the Port of Sept-Iles. These agreements are currently suspended until LIM's mining operations resume. LIM will be seeking additional amendments to be effective when the suspended contracts are reactivated. There are no assurances that LIM will be successful in negotiating such additional amendments to the commercial terms of its major contracts on reasonable or acceptable terms, or at all.

The port handling arrangements for the future shipment of LIM's iron ore production remain subject to ongoing evaluation and finalization. LIM continues to evaluate different options for the unloading, stockpiling and ship loading of its iron ore products at the Port of Sept-Iles. These potential options include renewal of a port access agreement with IOC, use of the Société Ferrovaire et Portuaire de Pointe Noire ("SFPPN", a public private partnership) port assets (which include the Wabush yard, dumper and loader, the Bloom Lake dumper and loader and the Arnaud Railway which connects that part of the Port to the QNS&L railroad) and/or use of the Port's new multi-user deep water dock and/or other facilities in the Port of Sept-Iles. Use of such facilities would require negotiation of a new agreement(s) with IOC, SFPPN and/or the Port.

Construction of the Houston Project is subject to the availability of construction financing. There are no assurances that the Company will be successful in obtaining the required financing and if it is unable to obtain such financing, the development of Houston will be delayed.

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PRELIMINARY ECONOMIC ASSESSMENT - HOUSTON PROJECT

LIM engaged Roscoe Postle Associates Inc., now part of SLR Consulting Ltd. (collectively, "RPA/SLR"), to complete a National Instrument 43-101("NI43-101") compliant technical report and preliminary economic assessment (collectively, the "PEA") of the Houston Project.

The PEA was issued in February 2021 with an effective date of December 31, 2020 and is filed on the Company's website and under the Company's profile on www.sedar.com.

Updated Mineral Resource Estimate

As part of the PEA, RPA/SLR completed an updated NI 43-101 mineral resource estimate and undertook a detailed optimization of Houston's open pit mining strategy and fully updated the proposed production schedule. This expanded scope of work focused on maximizing the component of the mineral resource that can benefit from the dry crushing and screening processing strategy and thereby increased the expected production life of the project from 10 years to 12 years.

As reported in the Technical Report, the updated NI 43-101 mineral resource estimate for the Houston Project, effective December 31, 2020, is as follows.

Houston Project: Mineral Resource Estimate

Updated Production Schedule

The strategy set out in the PEA aims to maximize the quantity of higher-grade mineralization and minimize the waste mined in the plan, thus lowering the strip ratio, with the objective of reducing overall costs. The revised mine plan is now scheduling distinct phases of mining in multiple smaller pits within the already permitted project footprint and is likely to result in a smaller overall disturbance area.

The PEA establishes an updated Houston mining schedule of 2 Mtpa (62.2% Fe) for total production of 23.4 Mt over a 12 year mine life. Mining and processing (consisting of dry crushing and screening only) will be undertaken 12 months of the year at a planned rate of 5,500 tpd, with an expected 100% mass yield. Train loading is planned to be undertaken from May to November (approximately 200 days per year) at a rate of 10,000 tpd. The product mix is expected to be 30% lump and 70% sinter fines DSO product.

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The following table summarizes planned mine production from the four deposits which comprise the Houston Project, as set out in the PEA.

Houston Project: Production Summary

Mining dilution of 5% at model grade is assumed, together with 99% mining recovery. Mass yield with dry crushing and screening is assumed at 100%.

Nearly 100% of production for the first five years of operations and nearly 100% of Houston 1 and Houston 2 production are derived from Measured and Indicated Resources. Overall, Measured and Indicated Mineral Resources represent approximately 80% of the planned production total.

Capital Costs

The PEA estimates initial direct capital costs of $51.3 million, and along with indirect costs, engineering, procurement and construction management (EPCM) costs, owner's costs and contingency, total initial capital expenditures of $86.8 million. Sustaining capital is estimated at $67.7 million.

Initial capital costs and sustaining capital costs include an 18% contingency on direct and indirect costs. Major mining equipment is included in the financial analysis under a capital lease arrangement.

Cost escalation, exploration costs, corporate costs, project financing (except major mine equipment leasing) and working capital are excluded from the estimates. Restricted cash accounts are assumed to cover the closure and reclamation obligations.

A table summarizing the various components of Houston Project capital costs according to the PEA is as follows.

Houston Project: Capital Costs

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