KAISER VENTURES INC, 10-Q, 2000-08-18

KAISER VENTURES INC
10-Q, 2000-08-18
LESSORS OF REAL PROPERTY, NEC

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended June 30, 2000 Commission File Number 0-18858

KAISER VENTURES INC.
--------------------
(Exact name of registrant as specified in its charter)

DELAWARE 94-0594733
-------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3633 East Inland Empire Blvd., Suite 850
Ontario, California 91764
-------------------------------------------------
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code: (909) 483-8500

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
---

Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.

Yes X No
---

On August 10, 2000, the Company had 6,399,020 shares of Common Stock, $.03 par
value, outstanding (including 136,919 shares deemed outstanding and held in
reserve by the Company for issuance to the former general unsecured creditors of
Kaiser Steel Corporation pursuant to its Plan of Reorganization).
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TABLE OF CONTENTS TO FORM 10-Q

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PAGE
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PART I
FORWARD-LOOKING STATEMENTS.................................................................... 1

INTRODUCTION

BUSINESS UPDATE............................................................................... 2

Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................. 7

Item 2. FINANCIAL STATEMENTS................................................................. 15

CONSOLIDATED BALANCE SHEETS.......................................................... 16

CONSOLIDATED STATEMENTS OF OPERATIONS................................................ 18

CONSOLIDATED STATEMENTS OF CASH FLOWS................................................ 19

CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY................................................................. 20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................................... 21

PART II

Item 1. LEGAL PROCEEDINGS.................................................................... 24

Item 2. CHANGES IN SECURITIES................................................................ 25

Item 3. DEFAULTS UPON SENIOR SECURITIES...................................................... 25

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.................................... 25

Item 5. OTHER INFORMATION.................................................................... 25

Item 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................... 25

SIGNATURES......................................................................................... 27
</TABLE>

AVAILABILITY OF PREVIOUS REPORTS

The Company will furnish without charge, to each stockholder, upon written
request of any such person, a copy of the Company's annual report on Form 10-K
for the year ended December 31, 1999, as filed with the Securities and Exchange
Commission, including the financial statement schedules thereto. Those
requesting a copy of the 10-K Report that are not currently stockholders of the
Company may also obtain a copy directly from the Company. Requests for a copy
of the 10-K Report should be directed to Executive Vice President-
Administration, at 3633 East Inland Empire Boulevard, Suite 850, Ontario,
California 91764.

The reader is encouraged to read this Form 10-Q Report in conjunction with
the Company's 10-K Report for the period ended December 31, 1999 and 10-Q Report
for the period ended March 31, 2000 since the information contained herein is
often an update of the information in such reports.

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KAISER VENTURES INC. AND SUBSIDIARIES

PART 1

FORWARD-LOOKING STATEMENTS

Except for the historical statements and discussions contained herein,
statements contained in this 10-Q Report constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Any press
release, 10-K, Annual Report to Stockholders, 10-Q or 8-K Report of the Company
or the Company's website, may include forward-looking statements. In addition,
other written or oral statements, which constitute forward-looking statements,
have been made and may be made in the future by the Company. Forward-looking
statements include, without limitation, any statement that forecasts, indicate,
anticipate or imply future results, performance, events or achievements. When
used or incorporated by reference in this 10-Q Report or in other written or
oral statements, the words "anticipate," "believe," "estimate," "expect,"
"project" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, expected or projected. For
example, actual results could materially differ from those projected as a result
of factors such as, but not limited to, general economic conditions in the
United States and Southern California; the impact of federal, state, and local
laws and regulations on the Company's development activities; the failure of the
bankruptcy discharge granted to the Company to address claims and litigation
that relate to the pre-bankruptcy activities of Kaiser Steel Corporation; the
failure, in whole or in part of the Company's business plans to, develop, sell
or otherwise deal with any major asset of the Company; the failure for any
reason of CCG Ontario, LLC to honor the terms of its agreements with the Company
in connection with the recently completed sale of the Mill Site real estate to
CCG Ontario, LLC, including its assumption of liability and responsibility for
certain environmental obligations and duties associated with the Mill Site; the
success of any material litigation involving the Company and its projects such
as legal challenges to the completed federal land exchange for the proposed
Eagle Mountain landfill project; and/or the risks and contingencies associated
with the planned sale of the Eagle Mountain project to the Los Angeles
Sanitation District. The risks included herein are not exhaustive. Other
sections of this 10-Q Report include additional factors that could adversely
impact the Company and its projects. Readers are cautioned not to put undue
reliance on forward-looking statements as a prediction of future actual results.
The Company disclaims any intention to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

ADDITIONAL INFORMATION

A reader of this 10-Q Report is strongly encouraged to read the entire
report, together with the Company's 1999 10-K Report and 10-Q Report for the
period ended March 31, 2000, for background information and a complete
understanding as to material developments concerning the Company.

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KAISER VENTURES INC. AND SUBSIDIARIES

INTRODUCTION

BUSINESS UPDATE

General

Kaiser Ventures Inc. ("Kaiser" or the "Company", including its wholly-owned
subsidiaries unless otherwise provided herein) is an asset development company
pursuing project opportunities and investments in water resources, property
redevelopment and solid waste management. The Company's current emphasis is on
its remaining principal assets: (i) a 53.71% interest in Fontana Union Water
Company ("Fontana Union"), a mutual water company; (ii) an 80% interest in Mine
Reclamation Corporation ("MRC"), the developer of the Eagle Mountain Landfill
Project (the "Landfill Project"); (iii) the 9,144 acre idle iron ore mine in the
California desert (the "Eagle Mountain Site"), which includes the associated
1,100 acre town of Eagle Mountain ("Eagle Mountain Townsite") and the land
leased to MRC for the Landfill Project; and (iv) a 50% joint venture interest in
the West Valley MRF ("WVMRF"), a transfer station and recycling facility located
on land acquired from the Company. On August 16, 2000, the Company completed the
sale of approximately 588 acres (gross) of the former Kaiser Steel Corporation
("KSC") mill site property (the "Mill Site Property") to CCG Ontario, LLC, a
subsidiary of Catellus Development Corporation, a New York Stock Exchange
company. Except for approximately 5 acres constituting what is known as the Tar
Pits Parcel, the balance of the Mill Site Property owned by the Company of
approximately 37 acres (gross) is currently under contract to be sold to The
California Speedway Corporation. (See "BUSINESS UPDATE - The Mill Site Property"
below). On August 9, 2000, Mine Reclamation, LLC, a subsidiary of MRC, entered
into an agreement to sell the Landfill Project to the County Sanitation District
No. 2 of Los Angeles County (the "District"). (See "BUSINESS UPDATE - Waste
Management - Eagle Mountain Landfill Project" below).

Investment in Fontana Union Water Company

The Company, through a wholly-owned subsidiary, Fontana Water Resources,
Inc., currently owns approximately 53.71% of the capital stock of Fontana Union,
a mutual water company. In the first quarter of 2000, the Company purchased
additional shares in Fontana Union which increased its ownership interest from
50.88% to 53.71%. The original 50.88% ownership interest in Fontana Union is
leased to Cucamonga pursuant to a 102-year take-or-pay lease expiring in 2092
(the "Cucamonga Lease"). The newly purchased shares are not leased to Cucamonga
under the terms of the Cucamonga Lease. Currently, the Company's pro rata
interest in unclaimed water raises its effective interest in Fontana Union to
56.11%. Under the terms of the Cucamonga Lease, Cucamonga's payments to the
Company are based upon established fixed quantities of water for most of the
applicable sources, multiplied by a fixed percentage of a water rate from the
Metropolitan Water District of Southern California ("MWD") as available through
the Chino Basin Municipal Water District as it may change from time-to-time (the
"Lease Rate").

As a result of changed rates and a new rate structure implemented by MWD as
of July 1, 1995, the Company and Cucamonga became involved in a rate dispute
under the terms of the Cucamonga Lease. After a trial held in March 1998, the
San Bernardino County Superior Court concluded that the rate on which the
Cucamonga Lease had been based was discontinued effective July 1, 1995. The
terms of the Cucamonga Lease require the parties to negotiate, in good faith, a
new substitute rate; however, the parties were not able to negotiate a new
substitute rate. As a result, the Superior Court ordered that, since the parties
were at an impasse, the new substitute rate was to be resolved by a reference
proceeding as required by the terms of the Cucamonga Lease. The reference
proceeding commenced during the week of February 28, 2000. After the conclusion
of all the testimony, the reference judge

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KAISER VENTURES INC. AND SUBSIDIARIES

ordered the parties to each submit a final brief and held final oral argument on
May 15, 2000. Subsequent to final oral argument, the parties decided to renew
their efforts to settle the dispute. Accordingly, the judge in the reference
proceeding will not issue her decision in the matter until such time as the
parties' renewed settlement discussions terminate. The Company currently
anticipates that settlement discussions will be concluded by no later than the
end of the third quarter of 2000. The Company cannot predict if the current
settlement discussions will result in a mutually acceptable resolution to the
dispute. Similarly, if there is no settlement of the dispute, there can be no
assurance that the Company will be successful in the reference proceeding with
regard to this portion of the rate dispute litigation with Cucamonga.

Further, MWD is in the process of evaluating and considering a major rate
restructuring, with several alternatives being proposed. It is anticipated that
MWD will discontinue its current rate system and adopt a new rate system in
2000. The Company cannot predict what impact the potential new MWD rate
restructuring process may have on the Company's rate dispute and settlement
discussions with Cucamonga.

In the second quarter of 2000, the Company entered into an agreement with
San Bernardino County settling water quality and quantity concerns associated
with the County's Mid-Valley Sanitary Landfill and its proposed expansion. To
date, neither the water quality nor water quantity issues have impacted the
payments received by the Company pursuant to the Cucamonga Lease. As a part of
the settlement, San Bernardino agreed that it was responsible for the known
contamination of the ground water and agreed to indemnify the Company from any
losses the Company may have as a result of such contamination. The County has
paid the costs necessary to construct facilities to remediate the ground water.
In addition, San Bernardino County agreed that, so long as there are water wells
operating to remediate the ground water contamination, it would pay a
substantial percentage of any economic losses under the Cucamonga Lease that the
Company may incur in the Colton-Rialto Groundwater Basin as a result of a drop
in the water level in the basin. The County is obligated to make such payments
even if such drop in water level cannot be directly traced to the operation of
such wells.

The Mill Site Property

As part of the transaction, CCG provided environmental insurance coverage
and other financial assurance mechanisms related to the Company's known and
unknown environmental obligations and risks related to the former mill site. In
addition, with CCG entering into a new Consent Order with the California
Department of Toxic Substances Control ("DTSC"), the Company's Consent Order
with the DTSC was terminated and the financial assurances that the Company had
provided the DTSC to assure investigation and remediation of the Mill Site
Property were released. A guaranty was provided by Catellus Development
Corporation to the DTSC to assure CCG's performance of its investigation,
remediation and associated operations and maintenance obligations under CCG's
Consent Order with the DTSC. The foregoing description of the transaction and
its terms is qualified in its entirety by the Purchase and Sale Agreement and
Joint Escrow Instructions between the Company and CCG, and the amendments
thereto, which are attached as exhibits to this 10-Q Report.

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KAISER VENTURES INC. AND SUBSIDIARIES

By way of background, in October 1999, the Company and its wholly owned
subsidiary, Kaiser Steel Land Development, Inc., entered into a Purchase and
Sale Agreement and Joint Escrow Instructions (the "Purchase Agreement") with
Ontario Partners I, LLC pursuant to which the Company agreed to sell
approximately 588 acres of its remaining Mill Site Property. After substantial
due diligence and work on the part of Ontario Partners I, LLC, moving toward an
anticipated closing on the transaction, Ontario Partners I and its members
became embroiled in a dispute and ultimately litigation with a third party over
Ontario Partners I's plans to purchase the property from the Company. Ontario
Partners I ultimately terminated its agreement with the Company to purchase the
property. In the meantime, the Company was able to negotiate and enter into a
new agreement with CCG for the sale of the property, which sale was ultimately
consummated as described above.

Rancho Cucamonga Parcel. Effective August 10, 2000, the Company entered
into an agreement to sell 37 acres of the Mill Site Property, known as the
Rancho Cucamonga parcel, to The California Speedway Corporation ("TCSC"). The
sales price is $3.8 million, or approximately $2.65 per square foot on a net
acreage basis. The sale is subject to TCSC's due diligence and the satisfaction
of numerous contingencies. A closing on the transaction, if it occurs, is
anticipated by the end of 2000.

If the Rancho Cucamonga parcel is sold, the only remaining Mill Site
Property owned by the Company will be the Tar Pits Parcel consisting of
approximately 5 acres.

Future Shareholder Distributions. With the sale of substantially all the
Mill Site Property to CCG, the Company is required to make a payment to the New
Kaiser Voluntary Employees' Beneficiary Association and to the Pension Benefit
Guaranty Corporation in accordance with the terms of their respective Stock
Purchase Agreement with the Company dated November 22, 1999. In addition, as a
result of the sale to CCG, the Company intends to provide, in some form, a
distribution of cash to shareholders. The Company's Board of Directors will
consider this and other matters at its next regularly scheduled Board meeting in
September 2000. For additional information, please see Part I. Item 1.
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Section 3. Business Outlook" and Item 5. "Other Information."

Waste Management

West Valley Materials Recovery Facility

The Company, through a wholly-owned subsidiary, and Burrtec Waste
Industries, Inc., also through a wholly-owned subsidiary, each own a fifty
percent (50%) interest in West Valley MRF, LLC, a limited liability company that
owns the West Valley MRF. Phase 1 of the West Valley MRF includes a 62,000
square foot building, sorting equipment, and related facilities for waste
transfer and recycling services. The West Valley MRF currently receives and
processes up to approximately 2,000 tons per day of non-hazardous commercial and
municipal solid waste. Waste is primarily received from jurisdictions in which
Burrtec affiliated companies have hauling contracts and from the city of
Ontario. However, with the closure of the Spadra regional landfill located in
Pomona operated by the Los Angeles Sanitation District in April 2000, the West
Valley MRF has begun to receive additional waste from the cities of Claremont,
Chino, Chino Hills and Pomona.

Given the level of demand for the services of the West Valley MRF, Burrtec
and the Company decided in 1999 to expand the West Valley MRF. Construction of
Phase 2 of the West Valley MRF is underway and is currently expected to be
completed by the end of 2000. Phase 2 would expand the processing capacity of
the West Valley MRF from approximately 2,000 tons per day to 3,500 tons per day.
Phase 2 involves constructing an approximately 80,000 square foot addition to
the existing

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KAISER VENTURES INC. AND SUBSIDIARIES

facilities, the purchase and installation of certain related equipment,
including rolling stock, and the rehabilitation and relocation of the certain
existing equipment. The estimated cost of the expansion is currently
approximately $9.5 million.

Like Phase 1, much of the financing for Phase 2 has been obtained through
the issuance and sale of California Pollution Control Financing Authority
Variable Rate Demand Solid Waste Disposal Revenue Bonds (the "Bonds"). Bonds in
the principal amount of $8,500,000 were sold in May 2000. This tax-exempt
financing is secured by a pledge and lien on loan payments made by the West
Valley MRF, LLC and funds that may be drawn on an irrevocable direct pay letter
of credit issued by Union Bank of California. The interest rate on these tax
exempt financings averaged 3.14% and 3.63%, respectively, for 1999 and for the
first six months of 2000. Like the Phase 1 financing, the Company and Burrtec
are each liable for 50% of the principal and interest on the Bonds in the event
of their default. The balance of the necessary construction funds of
approximately $1 million has been funded out of the cash West Valley MRF, LLC
has on hand. During the second quarter, West Valley MRF also obtained a $2
million line of credit from Union Bank of California for the acquisition of
truck trailers and other similar items (i.e., rolling stock) and to refinance
existing rolling stock.

Eagle Mountain Landfill Project

Background. In 1988, the Company entered into a 100-year lease agreement
(the "MRC Lease") with MRC. MRC is seeking to develop the Company's former iron
ore mine near Eagle Mountain, California into a large, regional rail-haul,
municipal solid waste landfill. MRC became a subsidiary of the Company when the
Company's subsidiary, Eagle Mountain Reclamation, Inc., acquired a 70% interest
in MRC during the first quarter of 1995 in exchange for the elimination of the
minimum monthly rent due the Company under the MRC Lease. As a result of a
series of private placements and a contribution of property by the Company to
MRC in the second quarter of 2000, as described in more detail below, the
Company's interest in MRC is now approximately 80%. In December 1999, the
Landfill Project received its last major permit necessary to construct and
operate a rail haul landfill. The Landfill Project is permitted to receive a
maximum of 20,000 tons per day of municipal solid waste for up to 88 years.

Mine Reclamation, LLC. In the second quarter, the Company acquired all of
MRC's outstanding preferred stock for approximately $97,000. Additionally, the
Company contributed all of its economic benefits in the MRC Lease, including the
Company's right to receive royalty payments under the terms of the MRC Lease, to
MRC, as well as an option to purchase the MRC leased property for one dollar
($1.00) in exchange for an additional common stock ownership interest in MRC. As
a result of these transactions, the Company then owned more than 80% of common
stock and 100% of the preferred stock of MRC. During June 2000, MRC formed Mine
Reclamation, LLC, a California limited liability company, and then contributed
all of it's assets and obligations to the new subsidiary.

Sale of Landfill Project. Effective August 9, 2000, Mine Reclamation, LLC,
a California limited liability company, entered into that certain Agreement For
Purchase and Sale of Real Property and Related Personal Property In Regard To
The Eagle Mountain Sanitary Landfill Project and Joint Escrow Instructions
("Landfill Project Sale Agreement") with District. In summary, the Landfill
Project the (which includes the Company's royalty payments under the MRC Lease)
is being sold for $41 million, with an initial closing anticipated to occur in
the first quarter of 2001, but it could occur as early as the end of 2000.
However, payment of the purchase price will be delayed as described in more
detail below. The sale of the Landfill Project is subject to the results of the
District's due diligence and satisfaction of numerous contingencies. The
contingencies include, but are not limited to, obtaining the transfer of the
Landfill Project's permits to the District and obtaining all necessary

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KAISER VENTURES INC. AND SUBSIDIARIES

consents to the transaction. The Company agreed to vote its interest in Mine
Reclamation in favor of the sale of the Landfill Project to the District on its
current terms.

Upon closing, $39 million of the total purchase price will be deposited
into an escrow account and will be released when litigation contingencies are
fully resolved. The litigation contingencies are the federal litigation over the
completed federal land exchange. Interest will accrue on this portion of the
purchase price commencing with the closing and will be paid out to Mine
Reclamation, LLC on a quarterly basis beginning with a successful outcome of the
federal litigation at the Federal District Court level. The remaining $2 million
of the purchase price will also be placed into an escrow account upon closing
and will be released upon the later of (1) the release of the $39 million as
described above or (2) the permitting of the District's Puente Hills landfill
for its remaining 10 years of capacity. Receipt of the purchase price, in whole
or in part, if at all, could be delayed for a substantial period of time pending
satisfactory resolution of these contingencies.

The District will immediately commence its due diligence on the Landfill
Project and will have the right to terminate the Landfill Purchase Agreement if
it is not satisfied with the results of its due diligence.

The foregoing summary of the Landfill Purchase Agreement is qualified in
its entirety by the Landfill Purchase Agreement attached as an exhibit to this
10-Q Report.

The Company understands that the District has also agreed to purchase the
competing proposed Mesquite Sanitary Landfill located in Imperial County,
California at a price and on terms that are substantially equivalent to the
terms contained in Mine Reclamation, LLC's Landfill Purchase Agreement.

Landfill Project Litigation. Currently, the only pending litigation
involving the Landfill Project concerns two lawsuits filed in Federal District
Court located in Riverside County challenging the completed federal land
exchange and requesting its reversal. To date, no immediate injunctive relief
has been sought. These two lawsuits generally involve the same parties that were
the plaintiffs in the unsuccessful state environmental impact report litigation
and the unsuccessful appeals before the Interior Board of Land Appeals. A
motion, briefing, and, if necessary, trial schedule has been established by the
Federal District Court. A determination on summary judgment motions and any
trial is currently scheduled for late May 2001.

Risks. As is discussed in more detail in the Company's 1999 Form 10-K
Report, there are numerous risks associated with MRC and the Landfill Project.
There are also numerous risks and contingencies associated with the pending sale
of the Landfill Project to the District. There can be no assurance that the sale
to the District will occur or that the current terms of the pending transaction
may not be modified as a result of future discussions with the District or as to
the timing of the receipt of the purchase price.

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KAISER VENTURES INC. AND SUBSIDIARIES

Item 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Section 1: Operating Results

General

As discussed above, Kaiser Ventures Inc. ("Kaiser" or the "Company") is an
asset development company pursuing project opportunities and investments in
water resources, property redevelopment, and solid waste management.

Primary Revenue Sources

Ongoing Operations

The Company's revenues from ongoing operations are generally derived from
the development of the Company's long-term projects. Water resources revenues
represent payments under the lease of the Company's interest in Fontana Union to
Cucamonga. Property redevelopment revenues primarily reflect revenues from long-
term redevelopment activities at the Mill Site Property, including water and
waste water treatment revenues; housing rental income, aggregate and rock sales,
and lease payments for the minimum security prison at the Eagle Mountain
Townsite; and royalty revenues from iron ore shipments from the Company's iron
ore mine in California (the "Silver Lake Mine"). Income from equity method
investments reflect Kaiser's share of income related to those equity investments
(i.e., PMI through March 31, 1999) and joint ventures (i.e., West Valley MRF)
which the Company accounts for under the equity method.

Interim Activities

Revenues from interim activities are generated from various sources
primarily related to the Mill Site Property. Significant components of interim
activities include rentals under short-term tenant lease arrangements, royalty
revenues from the sale of slag to outside contractors, royalty revenues from the
sale of recyclable revert materials, and other miscellaneous short-term
activities. Revenues from these activities have declined materially as the
redevelopment of the remaining Mill Site Property proceeds.

Summary of Revenue Sources

Due to the developmental nature of certain Company projects and the
Company's recognition of revenues from bankruptcy-related and other non-
recurring items, historical period-to-period comparisons of total revenues are
not meaningful for developing an overall understanding of the Company.
Therefore, the Company believes it is important to evaluate the trends in each
component of its revenue sources as well as the recent developments regarding
its long-term ongoing and interim revenue sources. See "Part I, Item 1. -
Business" for a discussion of recent material events affecting the Company's
revenue sources.

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KAISER VENTURES INC. AND SUBSIDIARIES

Results of Operations

Analysis of Results for the Quarters Ended June 30, 2000 and 1999

An analysis of the significant components of the Company's resource
revenues for the quarters ended June 30, 2000 and 1999 follows:

<TABLE>
<CAPTION>
2000 1999 % Inc. (Dec)
---- ---- ------------
<S> <C> <C> <C>
Ongoing Operations
Water resource.............................................. $ 1,155,000 $ 1,179,000 (2%)
Property redevelopment...................................... 374,000 370,000 1%
Income from equity method investment in the West Valley 479,000 212,000 126%
MRF, LLC................................................... ----------- ----------- ------------

Total ongoing operations.................................. 2,008,000 1,761,000 14%
---------- ---------- ------------
Interim Activities
Lease, service and other.................................. 99,000 104,000 (5%)
---------- ---------- ------------

Total resource revenues................................. $2,107,000 $ 1,865,000 13%
========== ========== ============

Revenues as a Percentage of Total Resource Revenues:
Ongoing operations........................................ 95% 94%
Interim activities........................................ 5% 6%
---------- ----------

Total resource revenues.................................. 100% 100%
========== ==========
</TABLE>

Resource Revenues. Total resource revenues for the second quarter of 2000
were $2,107,000, compared to $1,865,000 for 1999. Revenues from ongoing
operations increased 14% for the quarter to $2,008,000 from $1,761,000 in 1999,
while revenues from interim activities decreased 5% to $99,000 from $104,000 in
1999. Revenues from ongoing operations as a percentage of total revenues
increased to 95% in 2000 from 94% in 1999.

Ongoing Operations. Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $1,155,000 during the second quarter of 2000
compared to $1,179,000 for 1999. The 2% decrease in water revenues for the
quarter reflects an increase in the number of Fontana Union shareholders taking
water, which reduced the Company's effective interest in Fontana Union from
57.37% at June 30, 1999 to 56.11% at June 30, 2000.

Property redevelopment revenues were $374,000 for 2000 compared to $370,000
for 1999. The 1% increase from 1999 is primarily the result of a 3% increase in
sewer treatment plant revenues ($2,000).

Income from equity method investments was $479,000 for 2000 compared to
$212,000 for 1999. The 126% increase from 1999 is solely due to the improved
operational performance of the WVMRF.

Interim Activities. Revenues from interim activities for the second quarter
of 2000 were $99,000 compared to $104,000 for 1999. The 5% decrease in revenues
from interim activities in 2000 is primarily attributable to a reduction in
tenant rental and service revenue at the Mill Site ($41,000) being partially
offset by an increase in sale of metallics at the Mill Site ($34,000).

Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue sources. Total resource operating costs for the
second quarter of 2000 decreased to $577,000

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KAISER VENTURES INC. AND SUBSIDIARIES

from $701,000 in 1999. Operations and maintenance costs for 2000 were $222,000
compared to $214,000 for 1999. The 4% increase in 2000 operations and
maintenance costs was primarily due to higher maintenance and supplies costs for
buildings and equipment at Eagle Mountain ($8,000). Administrative support
expenses for the second quarter of 2000 decreased 27% to $355,000 from $487,000
for 1999. This decrease was primarily due to decrease in salaries and benefits,
operating, and legal expenses at the Mill Site due to the termination of most
interim activities during the second quarter of 1999.

Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the second quarter of 2000 decreased 9% to $785,000
from $860,000 for 1999. The decrease is primarily due to lower salaries and
benefits ($56,000) and lower professional and consulting expenses ($19,000).

Net Interest Income (Expense). Net interest income for the second quarter
of 2000 was $48,000 compared to net interest expense of $334,000 in 1999. The
change was due primarily to: (a) a decrease in interest expense ($289,000)
associated with a reduction in long term debt which was fully paid-off in
December 1999; (b) an increase in interest income ($59,000) due to higher cash
and investment balances; and (c) a decrease in loan fee amortization expense
($33,000).

Pre-Tax Loss and Income Tax Provision. The Company recorded income before
income tax provision of $793,000 for the second quarter of 2000, versus a loss
of $30,000 recorded in 1999. An income tax provision of $317,000 was recorded in
the second quarter of 2000 compared with a $4,000 tax benefit in 1999, based on
taxable income or loss for the respective periods.

Net Income (Loss). For second quarter of 2000, the Company reported a net
income of $476,000, or $.07 per share, versus a net loss of $26,000, or $.00 per
share, reported for 1999.

Analysis of Results for the Six Months Ended June 30, 2000 and 1999

An analysis of the significant components of the Company's resource
revenues for the six months ended June 30, 2000 and 1999 follows:

<TABLE>
<CAPTION>
2000 1999 % Inc. (Dec)
---- ---- ------------
<S> <C> <C> <C>
Ongoing Operations
Water resource.............................................. $ 2,310,000 $ 2,359,000 (2%)
Property redevelopment...................................... 760,000 726,000 5%
Income (loss) from equity method investment.................
Penske Motorsports Inc.................................... --- (329,000) N/A
West Valley MRF, LLC...................................... 808,000 212,000 281%
------------ ------------ ------------

Total ongoing operations................................ 3,878,000 2,968,000 31%
------------ ------------ ------------

Interim Activities
Lease, service and other.................................. 187,000 171,000 9%
------------ ------------ ------------
Total resource revenues................................ $ 4,065,000 $ 3,139,000 30%
============ ============ ============

Revenues as a Percentage of Total Resource Revenues:
Ongoing operations........................................ 95% 95%
Interim activities........................................ 5% 5%
------------ ------------

Total resource revenues................................ 100% 100%
============ ============
</TABLE>

Resource Revenues. Total resource revenues for the first six months of 2000
were $4,065,000, compared to $3,139,000 for 1999. Revenues from ongoing
operations increased 31% for the six

9
<PAGE>

months to $3,878,000 from $2,968,000 in 1999, while revenues from interim
activities increased 9% to $187,000 from $171,000 in 1999. Revenues from ongoing
operations as a percentage of total revenues was 95% for both 2000 and 1999.

Ongoing Operations. Water lease revenues under the Company's 102-year take-
or-pay lease with Cucamonga were $2,310,000 during the first six months of 2000
compared to $2,359,000 for 1999. The 2% decrease in water revenues during the
six months reflects an increase in the number of Fontana Union shareholders
taking water, which reduced the Company's effective interest in Fontana Union
from 57.37% at June 30, 1999 to 56.11% at June 30, 2000.

Property redevelopment revenues were $760,000 for 2000 compared to $726,000
for 1999. The 5% increase from 1999 is primarily the result of a 16% increase in
iron ore royalty revenues ($20,000) and a 3% increase in sewer treatment plant
revenues ($5,000).

Income (loss) from equity method investments increased by $925,000 due to
equity income from the WVMRF of $808,000 recorded for the first six months of
2000 compared to an equity loss of $329,000 from PMI being partially offset by
equity income from the WVMRF of $212,000 during the first six months of 1999.

Interim Activities. Revenues from interim activities for the first six
months of 2000 were $187,000 compared to $171,000 for 1999. The 9% increase in
revenues from interim activities in 2000 is primarily attributable to an
increase in sale of metallics at the Mill Site ($64,000) and the sale of
miscellaneous assets located at Eagle Mountain ($10,000) being mostly offset by
a reduction in tenant rental and service revenue at the Mill Site ($55,000).

Resource Operating Costs. Resource operating costs are those costs directly
related to the resource revenue sources. Total resource operating costs for the
first six months of 2000 decreased to $1,299,000 from $1,316,000 in 1999.
Operations and maintenance costs for the six months of 2000 and 1999 were level
at $432,000. Administrative support expenses for the first six months of 2000
decreased 2% to $867,000 from $884,000 for 1999. This decrease was primarily due
to an decrease in expenses related to layoffs that occurred in 1999 ($10,000)
and small decreases in professional and service costs ($6,000).

Corporate General and Administrative Expenses. Corporate general and
administrative expenses for the first six months of 2000 decreased 7% to
$1,628,000 from $1,742,000 for 1999. The decrease is primarily due to lower
payroll and related expenses ($56,000) and lower professional and outside
consulting expenses ($55,000).

Net Interest Income (Expense). Net interest income for the first six months
of 2000 was $156,000 compared to net interest expense of $654,000 in 1999. The
change was due primarily to: (a) a decrease in interest expense ($560,000)
associated with long term debt which was fully paid-off in December 1999; (b) an
increase in interest income ($182,000) due to higher cash and investment
balances; and (c) a decrease in loan fee amortization expense ($66,000).

Pre-Tax Loss and Income Tax Provision. The Company recorded income before
income tax provision of $1,294,000 for the first six months of 2000, versus a
loss of $573,000 recorded in 1999. An income tax provision of $518,000 was
recorded in the first six months of 2000 compared with a $219,000 tax benefit in
1999, based on taxable income or loss for the respective periods.

Net Income (Loss). For the first six months of 2000, the Company reported a
net income of $776,000, or $.12 per share, versus a net loss of $354,000, or
$.03 per share, reported for 1999.

10
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

Section 2: Financial Position

Cash, Cash Equivalents and Short-Term Investments. The Company defines cash
equivalents as highly liquid debt instruments with original maturities of 90
days or less. Cash and cash equivalents decreased $5,091,000 to $9,595,000 at
June 30, 2000 from $14,686,000 at December 31, 1999. Included in cash and cash
equivalents is $4,266,000 and $3,474,000 held solely for the benefit of MRC at
June 30, 2000 and December 31, 1999, respectively. The decrease in cash and
cash equivalents is primarily due to: (a) the payment of $3,640,000 for 1999
income taxes; (b) $1,974,000 in capital expenditures; (c) $654,000 for the
purchase of 424 additional shares of Fontana Union Water Company stock; and (d)
payment of $496,000 in environmental remediation costs. These decreases were
partially offset by: (a) equity funding from the MRC minority partners of
$558,000; (b) the issuance of common stock relating to the exercise of stock
options of $559,000; and (c) a $500,000 cash distribution from the WVMRF.

Working Capital. During the first six months of 2000, current assets
decreased $5,409,000 to $11,647,000 while current liabilities decreased
$4,335,000 to $7,551,000. The decrease in current assets resulted primarily
from the $5,091,000 decrease in cash and cash equivalents, most of which was
used to pay income taxes, and a $318,000 decline in net accounts receivable.
The decrease in current liabilities resulted primarily from the payment of
income taxes and decreases in liabilities associated with the permitting of the
Eagle Mountain landfill and environmental remediation at the Mill Site.
Included in current liabilities as of June 30, 2000 is $579,000 in accounts
payable and accrued liabilities relating to MRC. As a result, working capital
decreased during the first six months of 2000 by $1,074,000 to $4,096,000 at
June 30, 2000.

Real Estate. Real Estate increased $234,000 during the first six months of
2000 due to continuing redevelopment of the Mill Site properties.

Investments. There was a $308,000 increase in the Company's investment in the
WVMRF during the first six months of 2000 due to the Company's recording of its
equity share of income during the period ($808,000) reduced by a cash
distribution of $500,000. The $504,000 increase in the Company's investment in
Fontana Union Water Company ("FUWC") is due to the purchase of 424 shares of
FUWC stock from Western Water Company during the six months. The purchase price
of these 424 shares was $654,000 in cash, partially reduced by the elimination
of a commission liability of $150,000 due to Western Water Company. This
purchase raised the Company's equity ownership in FUWC from 50.88% to 53.77%.

Other Assets. The increase in other assets ($1,311,000) is primarily related
to: (a) capitalized landfill permitting and development costs incurred by MRC
($1,511,000) and minor capital improvements ($86,000). These increases were
partially offset by an increase in accumulated depreciation as of June 30, 2000
($220,000), and quarterly principal collections on notes receivable ($53,000).

Environmental Remediation. As of June 30, 2000, the Company estimated, based
upon current information, that its future remediation and other environmental
costs for the balance of its land and related matters, including groundwater and
other possible third party claims, would be between approximately $15.6 million
and $26.0 million, depending both upon the ultimate extent of the environmental
remediation and clean-up effort involved and which approved remediation
alternatives are eventually selected. However, as discussed below, substantially
all of these environmental liabilities were assumed by the Buyer with its
purchase of 588 acres of the Mill Site Property.

11
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

As of June 30, 2000, the total short-term and long-term environmental
liabilities including remediation reflected on the Company's balance sheet were
approximately $26.0 million, the high end of the probable range of future
remediation and other environmental costs, which declined from the $26.4 million
as of December 31, 1999. The decrease is a result of approximately $402,000 in
remediation and other environmental costs incurred in the first six months of
2000 on the Mill Site property.

During the second quarter, while there were ongoing environmental
investigations being conducted on the Mill Site Property and management believed
it was in a position to estimate with some reasonable certainty future
investigation and remediation costs, there can be no assurance that the actual
amount of environmental remediation expenditures to be incurred will not
substantially exceed those currently anticipated or that additional areas of
contamination may not be identified. However, under the terms of the sale of
588 acres of the Mill Site Property completed on August 16, 2000, as discussed
elsewhere in this report, substantially all environmental duties and obligations
associated with the Mill Site Property and certain environmental duties and
obligations associated with properties previously sold, with limited exceptions,
were assumed by the buyer of the property and there will be an appropriate
balance sheet reduction.

Long-term Liabilities. The $610,000 decrease in other long-term liabilities
is primarily due to the reduction of the environmental remediation liability as
a result of $402,000 in environmental remediation undertaken during the first
six months of 2000 and a decrease of $209,000 in other long term liabilities.

Minority Interest and Other Liabilities. As of June 30, 2000, the Company has
recorded $5,330,000 of minority interest relating to the approximately 20%
ownership interest in MRC the Company does not own.

Contingent Liabilities. The Company has contingent liabilities more fully
described in the notes to the financial statements.

Section 3: Business Outlook

The statements contained in this Business Outlook are based upon current
operations and expectations. In addition to the forward-looking statements and
information contained elsewhere in this 10-Q Report, these statements are
forward-looking and, therefore, actual results may differ materially.

On-Going Operations. As noted above, the Company's revenues from ongoing
operations are generally derived from the development of the Company's major
long-term projects and investments. The development of a number of these
projects and investments, such as the 102-year take-or-pay lease with Cucamonga,
and the 50% equity ownership of the West Valley MRF, are essentially complete
and the Company is recognizing significant revenues and income from these
investments. The Company anticipates revenues from these projects and
investments to increase moderately over time as certain key economic factors
impacting these projects and investments increase. In addition, the Company
continues to evaluate these completed projects and investments in light of how
to best provide maximum value to its shareholders.

In regard to the lease with Cucamonga, the most significant economic factor
affecting future water lease revenues is likely to be adjustments in the MWD
rate for untreated and non-interruptible water as available through the Chino
Basin Municipal Water District (now called Inland Empire Utilities Agency (the
"Lease Rate") upon which the lease payments are currently calculated. The MWD
rate established for untreated, non-interruptible water is based on a number of
factors, including MWD's need for

12
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

funds to finance capital improvements and to cover large fixed overhead costs.
After increasing at an average of around 8% per year during the past 25 years,
MWD is projecting that the MWD rate for untreated, non-interruptible water,
including all of the changed rates and charges implemented by MWD since July 1,
1995, will likely increase at less than 5.0% per year for the next 2-4 years.
This reduction is due to a reduced capital budget, lower overhead, lower
borrowing costs, and reduced levels of inflation. Also affecting the Company's
future water lease revenues is the dispute with Cucamonga regarding the
calculation of the Lease Rate.

After a trial held in March 1998, the San Bernardino County Superior Court
concluded that the rate on which the Cucamonga Lease had been based was
discontinued effective July 1, 1995. The terms of the Cucamonga Lease require
the parties to negotiate, in good faith, a new substitute rate; however, the
parties were not able to negotiate a new substitute rate. As a result, the
Superior Court ordered that, since the parties were at an impasse, the new
substitute rate was to be resolved by a reference proceeding as required by the
terms of the Cucamonga Lease. The reference proceeding commenced during the
week of February 28, 2000. After the conclusion of all the testimony, the
reference judge ordered the parties to each submit a final brief and held final
oral argument on May 15, 2000. Subsequent to final oral argument, the parties
decided to renew their efforts to settle the dispute. Accordingly, the judge in
the reference proceeding will not issue her decision in the matter until such
time as the parties' renewed settlement discussions terminate. The Company
currently anticipates that settlement discussions will be concluded by no later
than the end of the third quarter of 2000. The Company cannot predict if the
current settlement discussions will result in a mutually acceptable resolution
to the dispute. Similarly, if there is no settlement of the dispute, there can
be no assurance that the Company will be successful in the reference proceeding
with regard to this portion of the rate dispute litigation with Cucamonga.

In addition, the Company purchased, in March 2000, an additional 424 shares of
Fontana Union from Western Water Company for approximately $504,000. This
purchase raised the Company's equity ownership in FUWC from 50.88% to 53.77%.
The price per share reflects a substantial minority discount and also reflects
the resolution of a legal dispute between the seller of the shares and the
Company. The purchase of these additional shares, which are not covered by the
take-or-pay lease with Cucamonga, will assist in protecting the Company's
effective interest in Fontana Union, which is utilized in calculating the
revenue under the take-or-pay lease with Cucamonga.

In regard to the WVMRF, the most significant factor affecting the Company's
future equity income from the WVMRF is the expansion of the facility's capacity
from 2,000 to 3,500 tons per day. This expansion, which will cost approximately
$9.5 million and is anticipated to be completed by the end of 2000, will
increase the processing facility by an additional 80,000 square feet and will
provide for additional materials recovery sorting capacity. The ultimate
success of this expansion will continue to depend on the ability of the WVMRF
to attract new customers and waste volumes from the closure of local landfills
such as the Spadra Landfill, which closed in April 2000, and on the future
construction of any competing facilities.

Sale of Eagle Mountain Landfill Project. Effective August 9, 2000, Mine
Reclamation, LLC, a California limited liability company, entered into that
certain Agreement For Purchase and Sale of Real Property and Related Personal
Property In Regard To The Eagle Mountain Sanitary Landfill Project

13
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

and Joint Escrow Instructions ("Landfill Project Sale Agreement") with County
Sanitation District No. 2 of Los Angeles County (the "District"). In summary,
the Landfill Project (which includes the Company's royalty payments under the
MRC Lease) is being sold for $41 million with an initial closing anticipated to
occur in the first quarter of 2001, but it could occur as early as the end of
2000. However, payment of the purchase price will be delayed as described in
more detail below. The sale of the Landfill Project is subject to the results of
the District's due diligence and satisfaction of numerous contingencies. The
contingencies include, but are not limited to, obtaining the transfer of the
Landfill Project's permits to the District and obtaining all necessary consents
to the transaction. The Company agreed to vote its interest in Mine Reclamation
in favor of the sale of the Landfill Project to the District on its current
terms.

Upon closing, $39 million of the total purchase price will be deposited into
an escrow account and will be released when litigation contingencies are fully
resolved. The litigation contingencies are the federal litigation over the
completed federal land exchange. Interest will accrue on this portion of the
purchase price commencing with the closing and interest will be paid out to Mine
Reclamation, LLC on a quarterly basis beginning with a successful outcome of the
federal litigation at the Federal District Court level. The remaining $2 million
of the purchase price will also be placed into an escrow account upon closing
and will be released upon the later of (i) the release of the $39 million as
described above, or (2) the permitting of the District's Puente Hills landfill
for its remaining 10 years of capacity. Receipt of the purchase price, in whole
or in part, if at all, could be delayed for a substantial period of time pending
satisfactory resolution of these contingencies.

As part of the transaction, CCG provided environmental insurance coverage and
other financial assurance mechanisms related to the Company's known and unknown
environmental obligations and risks regarding the property sold. In addition,
with CCG entering into a new Consent Order with the California Department of
Toxic Substances Control ("DTSC"), the Company's Consent Order with the DTSC was
terminated and the financial assurances that the Company had provided the DTSC
to assure investigation and remediation of the Mill Site Property were released.
A guaranty was provided by Catellus Development Corporation to the DTSC to
assure CCG's performance of its investigation, remediation and associated
operations and maintenance obligations under CCG's Consent Order with the DTSC.

Effective August 10, 2000, the Company entered into an agreement to sell 37
acres of the Mill Site, known as the Rancho Cucamonga parcel, to The California
Speedway Corporation ("TCSC"). The sales price is $3.8 million, or
approximately $2.65 per square foot on a net acreage basis. The sale is subject
to TCSC's due diligence and the satisfaction of numerous contingencies. A
closing on the transaction, if it occurs, is anticipated by the end of 2000.

Future Shareholder Distributions. With the sale of substantially all the Mill
Site Property to CCG, the Company is required to make a payment to the New
Kaiser Voluntary Employees' Beneficiary

14
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

Association and to the Pension Benefit Guaranty Corporation in accordance with
the terms of their respective Stock Purchase Agreement with the Company dated
November 22, 1999. In addition, as a result of the sale to CCG, the Company
intends to provide, in some form, a distribution of cash to shareholders. The
Company's Board of Directors will consider this and other matters at its next
regularly scheduled Board meeting in September 2000.

Corporate Overhead. As the above transactions are completed, the Company
intends to reduce its corporate staffing and overhead to reflect the reduced
requirements of it remaining operations and projects.

Capital Resources. The Company expects that its current cash balances and
short-term investments together with: (a) cash provided from operating
activities; (b) amounts available under its $30,000,000 revolving-to-term credit
facility (less any financial assurances required by the DTSC) will be
sufficient to satisfy both the Company's near-term operating cash requirements
and to enable the Company to continue to fund the development of its long-term
projects and investments.

Improved Cash Flow from Use of Net Operating Loss Tax Carryforwards. Due to
the Company's status as successor to KSC and its use of KSC-related NOLs, income
taxes actually paid by the Company are substantially less than the income tax
provision reported in its financial statements. The tax benefit associated with
the utilization of NOLs, if any, has historically been reflected as an increase
to stockholders' equity rather than as an increase to net income. The Company
expects that its use of these NOLs will substantially reduce the cash paid for
income taxes until these NOLs are fully utilized. The total NOLs at June 30,
2000, are estimated to be approximately $35 million for federal purposes. These
federal NOLs expire in varying amounts over a period from year 2006 to 2013. In
addition, the Company expects that the closing of the sale of MRC to the Los
Angeles Sanitation District will result in a taxable loss in the range of $15-
$20 million. Such a loss would increase the Company's federal NOLs by the
amount of the loss and create a state NOL equal to 50% of the loss.

If within a three-year period, 50% or more of the stock of the Company changes
ownership, the future annual use of NOLs may be limited. The annual limitation
would be calculated as the product of: (i) the highest long-term tax-exempt
rate for a designated period prior to the ownership change; and (ii) the market
value of the Company at such time.

Item 2. FINANCIAL STATEMENTS

(Remainder of this Page Intentionally Left Blank)

15
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
as of

<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS

Current Assets
Cash and cash equivalents.................................... $ 9,595,000 $ 14,686,000
Accounts receivable and other, net of allowance for
doubtful accounts of $83,000 and $90,000,
respectively................................................ 1,660,000 1,978,000
Deferred tax assets.......................................... 285,000 285,000
Note receivable.............................................. 107,000 107,000
------------ ------------

11,647,000 17,056,000
------------ ------------

Investment in Fontana Union Water Company...................... 16,612,000 16,108,000
------------ ------------

Investment in West Valley MRF.................................. 3,317,000 3,009,000
------------ ------------

Real Estate
Land and improvements....................................... 8,543,000 8,543,000
Real estate held for sale................................... 39,054,000 38,820,000
------------ ------------

47,597,000 47,363,000
------------ ------------

Other Assets
Note Receivable............................................. 647,000 700,000
Deferred tax assets......................................... 577,000 577,000
Landfill permitting and development......................... 17,311,000 15,800,000
Buildings and equipment (net)............................... 2,670,000 2,805,000
Other assets................................................ 15,000 27,000
------------ ------------

21,220,000 19,909,000
------------ ------------

Total Assets................................................... $100,393,000 $103,445,000
============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

16
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
as of

<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable............................................ $ 776,000 $ 887,000
Income taxes payable........................................ 101,000 3,501,000
Accrued liabilities......................................... 4,174,000 4,998,000
Environmental remediation................................... 2,500,000 2,500,000
------------ ------------

7,551,000 11,886,000
------------ ------------

Long-term Liabilities
Deferred gain on sale of real estate........................ 724,000 724,000
Accrued liabilities......................................... 1,097,000 1,305,000
Environmental remediation................................... 23,466,000 23,868,000
------------ ------------

25,287,000 25,897,000
------------ ------------

Total Liabilities.............................................. 32,838,000 37,783,000
------------ ------------

Minority Interest.............................................. 5,330,000 4,772,000
------------ ------------

Commitments and Contingencies

Stockholders' Equity
Common stock, par value $.03 per share, authorized
13,333,333 shares; issued and outstanding
6,389,520 and 6,316,853 respectively....................... 192,000 189,000
Capital in excess of par value.............................. 49,301,000 48,745,000
Retained earnings........................................... 12,732,000 11,956,000
------------ ------------

Total Stockholders' Equity..................................... 62,225,000 60,890,000
------------ ------------

Total Liabilities and Stockholders' Equity..................... $100,393,000 $103,445,000
============ ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

17
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three and Six Months Ended June 30
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------------- ---------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Resource Revenues
Ongoing Operations
Water resource................................. $1,155,000 $ 1,179,000 $2,310,000 $ 2,359,000
Property redevelopment......................... 374,000 370,000 760,000 726,000
Income (loss) from equity method investments
Penske Motorsports Inc........................ --- --- --- (329,000)
West Valley MRF, LLC.......................... 479,000 212,000 808,000 212,000
---------- ----------- ---------- -----------

Total ongoing operations...................... 2,008,000 1,761,000 3,878,000 2,968,000
---------- ----------- ---------- -----------

Interim Activities.............................. 99,000 104,000 187,000 171,000
---------- ----------- ---------- -----------

Total resource revenues....................... 2,107,000 1,865,000 4,065,000 3,139,000
---------- ----------- ---------- -----------

Resource Operating Costs
Operations and maintenance...................... 222,000 214,000 432,000 432,000
Administrative support expenses................. 355,000 487,000 867,000 884,000
---------- ----------- ---------- -----------

Total resource operating costs................ 577,000 701,000 1,299,000 1,316,000
---------- ----------- ---------- -----------

Income from Resources............................ 1,530,000 1,164,000 2,766,000 1,823,000

Corporate general and administrative expenses... 785,000 860,000 1,628,000 1,742,000
---------- ----------- ---------- -----------

Income from Operations........................... 745,000 304,000 1,138,000 81,000

Net Interest (income) expense................... (48,000) 334,000 (156,000) 654,000
---------- ----------- ---------- -----------

Income (Loss) before Income Tax Provision........ 793,000 (30,000) 1,294,000 (573,000)

Income tax provision (benefit).................. 317,000 (4,000) 518,000 (219,000)
---------- ----------- ---------- -----------

Net Income (Loss)................................ $ 476,000 $ (26,000) $ 776,000 $ (354,000)
========== =========== ========== ===========

Basic Earnings Per Share......................... $ .07 $ .00 $ .12 $ (.03)
========== =========== ========== ===========

Diluted Earnings Per Share....................... $ .07 $ .00 $ .12 $ (.03)
========== =========== ========== ===========

Basic Weighted Average Number of Shares
Outstanding..................................... 6,378,000 10,699,000 6,362,000 10,697,000

Diluted Weighted Average Number of Shares
Outstanding..................................... 6,703,000 10,699,000 6,725,000 10,697,000
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

18
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Six Months Ended June 30
(Unaudited)

<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss)......................................... $ 776,000 $ (354,000)
(Income) loss from equity method investments.............. (808,000) 117,000
Deferred tax (benefit) expense............................ --- (233,000)
Depreciation and amortization............................. 233,000 272,000
Allowance for doubtful accounts........................... (7,000) (50,000)
Changes in assets:
Receivables and other................................... 325,000 837,000
Changes in liabilities:
Current liabilities..................................... (548,000) 724,000
Income taxes payable.................................... (3,400,000) ---
Long-term accrued liabilities........................... (208,000) (323,000)
----------- -----------

Net cash flows from operating activities.................. (3,637,000) 990,000
----------- -----------

Cash Flows from Investing Activities
Minority interest and other liabilities................... 558,000 393,000
Distribution from West Valley MRF......................... 500,000 ---
Note receivable collections............................... 53,000 50,000
Investment in Fontana Union Water Co...................... (654,000) ---
Capital expenditures...................................... (1,974,000) (1,836,000)
Environmental remediation expenditures.................... (496,000) (927,000)
----------- -----------

Net cash flows from investing activities.................. (2,013,000) (2,320,000)
----------- -----------

Cash Flows from Financing Activities
Issuance of common stock.................................. 559,000 128,000
Borrowings under revolver-to-term credit facility......... --- 2,000,000
----------- -----------

Net cash flows from financing activities.................. 559,000 2,128,000
----------- -----------

Net Changes in Cash and Cash Equivalents................... (5,091,000) 798,000

Cash and Cash Equivalents at Beginning of Year............. 14,686,000 3,409,000
----------- -----------

Cash and Cash Equivalents at End of Quarter................ $ 9,595,000 $ 4,207,000
=========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

19
<PAGE>

KAISER VENTURES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the Six Months Ended June 30, 2000
(Unaudited)

<TABLE>
<CAPTION>
Capital In
Common Stock Excess of Retained
---------------------------
Shares Amount Par Value Earnings Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 6,316,853 $189,000 $48,745,000 $11,956,000 $60,890,000

Issuance of shares of
Common stock.................. 72,667 3,000 556,000 --- 559,000

Net Income........................ --- --- --- 776,000 776,000
--------- -------- ----------- ----------- -----------

Balance at June 30, 2000 6,389,520 $192,000 $49,301,000 $12,732,000 $62,225,000
========= ======== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

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KAISER VENTURES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. BASIS OF PRESENTATION

The unaudited, consolidated financial statements as of June 30, 2000 and for
the three and six month periods ended June 30, 2000 and 1999, as well as related
notes, should be read in conjunction with the audited consolidated financial
statements and related notes as of and for the year ended December 31, 1999. In
the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary (all of which are normal and/or recurring in
nature) to present fairly the Company's financial position at June 30, 2000, and
results of operations and cash flows for the three and six month periods ended
June 30, 2000 and 1999.

Note 2. CUCAMONGA LEASE

The Company, through a wholly-owned subsidiary, Fontana Water Resources, Inc.,
leases most of its 53.71% ownership of the capital stock of Fontana Union, a
mutual water company, to Cucamonga County Water District ("Cucamonga") pursuant
to a take-or-pay lease (the "Cucamonga Lease") that terminates in the year 2092.
In 1996, the Company instituted litigation against Cucamonga due to a dispute
concerning the amount payable to the Company pursuant to the terms of the
Cucamonga Lease. The dispute centers on the Company's assertion that either the
MWD Rate in the Cucamonga Lease was discontinued on July 1, 1995, or that the
Lease Rate should be interpreted to include all the changed rates and items
implemented by Metropolitan Water District of Southern California ("MWD") since
July 1, 1995. A five-day trial on the matter was held in March 1998. The Court
ruled, in favor of the Company, that the rate on which the Cucamonga Lease had
been based was discontinued effective July 1, 1995. Therefore the terms of the
Cucamonga Lease require the parties to negotiate in good faith a new substitute
MWD rate. To date, the parties have been unable to negotiate a substitute Lease
Rate; consequently, the matter has been submitted to a reference process, which
is a private trial much like arbitration. The reference proceeding commenced
during the week of February 28, 2000. After the conclusion of all the testimony
in the proceeding, the court asked for further briefing and scheduled a final
oral argument which was scheduled for May 15, 2000. A decision from the judge
was expected within 60 days thereafter; however, the parties reopened
negotiations between themselves and have requested that the judge postpone her
decision in the matter until such time as the parties' renewed settlement
discussions terminate.

Cucamonga continues to pay under the terms of the Cucamonga Lease, but at a
rate substantially less than the Lease Rate that the Company maintains it is
entitled to receive pursuant to the Cucamonga Lease. Although the Company is
continuing to bill Cucamonga at what it believes is the correct MWD rate under
the lease with Cucamonga, the Company has elected to report revenues on the
basis of amounts Cucamonga is currently paying. The total amount of lease
payments in dispute as of June 30, 2000 is approximately $2,896,000.

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KAISER VENTURES INC. AND SUBSIDIARIES

Note 3. MINE RECLAMATION CORPORATION

In May 2000, the Company acquired all of MRC's outstanding preferred stock for
approximately $97,000 and additionally contributed all of its economic benefits
in the MRC Lease (including the Company's right to receive royalty payments
under the MRC Lease) to MRC as well as an option to purchase the MRC leased
property in exchange for an additional common stock ownership interest in MRC.
As a result of these transactions, the Company now owns more than 80% of common
stock and 100% of the preferred stock of MRC. During June 2000, MRC formed Mine
Reclamation, LLC, a California limited liability company, and then contributed
all of it's assets and obligations to the new subsidiary. MRC will now be
included in the Company's consolidated tax group for income tax reporting
purposes.

Note 4. SUPPLEMENTAL CASH FLOW INFORMATION

During the six months ended June 30, 1999, the Company issued $61,000 of
common stock for the payment of bonuses. The Company has not issued any common
stock for the payment of bonuses during 2000.

Note 5. COMMITMENTS AND CONTINGENCIES

Environmental Contingencies

The Company estimates, based upon current information, that its future
remediation and other environmental costs, including groundwater and other
possible third party claims, will be between approximately $15.6 million and
$26.0 million, depending upon which approved remediation alternatives are
eventually selected.

During the second quarter, while there were ongoing environmental
investigations were being conducted on the Mill Site Property, and management
believed it was in a position to estimate with some reasonable certainty future
investigation and remediation costs, there can be no assurance that the actual
amount of environmental remediation expenditures and incurred will not
substantially exceed those currently anticipated or that additional areas of
contamination may not be identified. The Company anticipates recovery of the
remediation costs incurred through redevelopment of the property, primarily in
connection with specific redevelopment projects or joint ventures. Further, the
Company has provided certain financial assurances to the DTSC in connection with
anticipated remediation activities, the primary one being the dedication of
approximately $4.8 million of Kaiser's Union Bank Credit facility. However, as
of August 16, 2000, the Company sold approximately 588 acres of the Mill Site
Property to CCG Ontario, LLC ("CCG") for $16 million plus the assumption of
substantially all the Company's environmental duties and liabilities associated
with the property sold and a substantial portion of the environmental duties and
liabilities for properties previously sold. The Company's financial assurances
to the DTSC were terminated as a result of the property sale and CCG entering
into a new consent order with the DTSC. (See Note 6. Subsequent Events).

While the Company has monitored certain groundwater wells in the past, the
DTSC requested and the Company will implement a supplemental groundwater
monitoring system. The Company has settled obligations of groundwater
contamination with the California Regional Water Quality Control

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KAISER VENTURES INC. AND SUBSIDIARIES

Board. The settlement required a $1,500,000 cash payment by the Company, which
was made in February 1994, and the contribution of 1,000 acre feet of water
annually for 25 years to a water quality project. These water rights are
unrelated to those leased to Cucamonga. In 1995, the Company contributed 18,000
acre feet of its water in storage thus, satisfying the first 18 years of its
obligation. In September 1998, the Company contributed an additional 7,000 acre
feet of its water in storage. This additional contribution of water completed
all of the Company's obligations under the terms of the settlement agreement
approximately 20 years ahead of schedule. The Company remains contingently
liable for any impacts the groundwater plume may have on water wells owned by
third parties. The City of Ontario, California has commenced litigation against
the Company alleging that the Company has contaminated one of its municipal
wells. The Company believes sufficient amounts have been accrued for this
contingency if it should arise.

Note 6. SUBEQUENT EVENTS

Sale of the Mill Site Property. As of August 16, 2000, the Company sold
approximately 588 acres of the Mill Site Property to CCG Ontario, LLC ("CCG")
for $16 million plus the assumption of substantially all the Company's
environmental duties and liabilities associated with the property sold and
certain environmental liabilities and obligations for properties previously sold
by the Company, such as the NAPA Lots. The sale included the proposed Kaiser
Commerce Center with its truck stop project and the East Slag Pile Property, as
well as ancillary items such as the water rights associated with the property.
CCG is a subsidiary of Catellus Development Corporation, a New York Stock
Exchange company. As part of the transaction, CCG provided environmental
insurance coverage and other financial assurance mechanisms related to the
Company's known and unknown environmental obligations and risks related to the
former mill site. In addition, with CCG entering into a new Consent Order with
the DTSC, the Company's Consent Order with the DTSC was terminated and the
financial assurances that the Company had provided the DTSC to assure
investigation and remediation of the Mill Site Property were released. A
guaranty was provided by Catellus Development Corporation to the DTSC to assure
CCG's performance of its investigation, remediation and associated operations
and maintenance obligations under CCG's Consent Order with the DTSC.

Sale of Landfill Project. Effective August 9, 2000, Mine Reclamation, LLC, a
California limited liability company, entered into that certain Agreement For
Purchase and Sale of Real Property and Related Personal Property In Regard To
The Eagle Mountain Sanitary Landfill Project and Joint Escrow Instructions
("Landfill Project Sale Agreement") with County Sanitation District No. 2 of Los
Angeles County (the "District"). In summary, the Landfill Project (which
includes the Company's right to royalty payments under the MRC Lease) is being
sold for $41 million, with an initial closing anticipated to occur around the
end of 2000. However, payment of the purchase price will be delayed as
described in more detail below. The sale of the Landfill Project is subject to
the results of the District's due diligence and satisfaction of numerous
contingencies. The contingencies include, but are not limited to, obtaining the
transfer of the Landfill Project's permits to the District and obtaining all
necessary consents to the transaction. The Company agreed to vote its interest
in Mine Reclamation in favor of the sale of the Landfill Project to the District
on its current terms.

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KAISER VENTURES INC. AND SUBSIDIARIES

price will also be placed into an escrow account upon closing and will be
released upon the later of (i) the release of the $39 million as described
above, or (2) the permitting of the District's Puente Hill landfill for its
remaining 10 years of capacity. Receipt of the purchase price, in whole or in
part, if at all, could be delayed for a substantial period of time pending
satisfactory resolution of these contingencies.

Effective August 9, 2000, the Company entered into an agreement to sell 37
acres of the Mill Site, known as the Rancho Cucamonga parcel, to The California
Speedway Corporation ("TCSC"). The sales price is approximately $3.8 million,
or approximately $2.65 per square foot on a net acreage basis. The sale is
subject to TCSC's due diligence and the satisfaction of numerous contingencies.
A closing on the transaction, if it occurs, is anticipated by the end of 2000.

PART II

Item 1. LEGAL PROCEEDINGS

As discussed in the Company's Form 10-K Report for 1999, the Company is
engaged in certain claims and litigation. There were no material developments
in any legal proceeding in the second quarter of 2000 except as noted below:

Eagle Mountain Landfill Project Litigation. As previously disclosed and
discussed, there are two lawsuits pending in the United States District Court
for the Central District of California, Riverside Division, challenging the land
exchange that the Company completed with the U.S Bureau of Land Management in
October, 1999. The Court has established a motion, briefing, and trial schedule
for the cases. The current schedule is that motions for summary judgment will
be decided in May 2001 and a trial, should one be necessary, will also be held
in May 2001.

For additional information on the Landfill Project litigation, see
"Introduction - BUSINESS UPDATE - Waste Management - Eagle Mountain Landfill
Project" of this 10-Q Report, as well as the Company's 1999 10-K Report.

Cucamonga Litigation. In 1996, the Company initiated legal action against
Cucamonga as a result of dispute over the amount owed to the Company under the
terms of its lease of Fontana Union Water stock to Cucamonga. Since the parties
were unable to negotiate a new substitute rate, the Cucamonga Lease requires
that the matter be resolved in a reference proceeding. A reference proceeding
is in effect a private trial. During the week of February 28, 2000, all the
testimony in the reference proceeding was presented. Final briefs were filed
and final oral argument was held in the second quarter of 2000. However, since
the parties have reinitiated settlement discussions, the reference judge has
suspended consideration and issuance of her decision until the outcome of the
current discussions is known. For additional information, please see
"Introduction - BUSINESS UPDATE - Investment in Fontana Union Water Company."

24
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KAISER VENTURES INC. AND SUBSIDIARIES

Item 2. CHANGES IN SECURITIES

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

As reported in the Company's 10-Q Report for the period ended March 31,
2000, on May 10, 2000, the Company held its annual meeting of
stockholders. The only actions taken by the stockholders were a vote on
the election of seven directors for the Company for the ensuing year
and on the Company's 2000 Stock Plan. The stockholders re-elected the
current seven members of the Board of Directors. The Company's 2000
Stock Plan did not receive the necessary shareholder approval by less
than 60,000 shares.

Item 5. OTHER INFORMATION

See the "Introduction" section of this Form 10-Q Report.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits
--------

Exhibit 10.1 - Purchase and Sale Agreement and Joint Escrow
Instructions among Kaiser Ventures Inc., Kaiser Steel Land
Development, Inc. and CCG Ontario, LLC dated July 13, 2000.

Exhibit 10.1.1 - First Amendment to Purchase and Sale Agreement and
Joint Escrow Instructions among Kaiser Ventures Inc., Kaiser Steel
Land Development, Inc. and CCG Ontario, LLC dated July 20, 2000.

Exhibit 10.1.2 - Second Amendment to Purchase and Sale Agreement
and Joint Escrow Instructions among Kaiser Ventures Inc., Kaiser
Steel Land Development, Inc. and CCG Ontario, LLC dated July 27,
2000.

Exhibit 10.1.3 - Third Amendment to Purchase and Sale Agreement and
Joint Escrow Instructions among Kaiser Ventures Inc., Kaiser Steel
Land Development, Inc. and CCG Ontario, LLC dated August 15, 2000.

Exhibit 10.2 - Purchase Agreement and Escrow Instructions between
Kaiser Steel Land Development, Inc. and The California Speedway
Corporation dated August 10, 2000.

Exhibit 10.3 - Agreement For Purchase and Sale of Real Property and
Related Personal Property in Regard to The Eagle Mountain Sanitary
Landfill Project and Joint Escrow

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KAISER VENTURES INC. AND SUBSIDIARIES

Instructions between County Sanitation District No. 2 of Los Angeles
County and Mine Reclamation, LLC dated August 9, 2000.

Exhibit 10.4 - First Amendment and Restated Environmental Guaranty
Agreement between West Valley MRF, LLC and Union Bank of California
dated May 1, 2000.

Exhibit 10.4.1 - Guaranty and Mandatory Deposit Agreement between West
Valley MRF, LLC and Union Bank of California, N.A. dated May 1, 2000.

Exhibit 10.4.2 - First Amendment and Restated Environmental Compliance
Agreement between West Valley MRF, LLC and Union Bank of California,
N.A. dated May 1, 2000.

Exhibit 10.4.3 - Reimbursement Agreement between West Valley MRF, LLC
and Union Bank of California, N.A. dated May 1, 2000.

Exhibit 10.4.4 - Loan Agreement between West Valley MRF, LLC and Union
Bank of California, N.A. dated May 1, 2000.

Exhibit 10.4.5 - Loan Guaranty between West Valley MRF, LLC and Union
Bank of California, N.A. dated May 1, 2000.

Exhibit 27 - Financial Data Schedule for second quarter 10-Q.

B. Reports on Form 8-K.
--------------------

None.

(Remainder of this Page Intentionally Left Blank)

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KAISER VENTURES INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

KAISER VENTURES INC.

Dated: August 18, 2000 /s/ James F. Verhey
-------------------------
James F. Verhey
Principal Financial Officer