Forging Ahead

By the time Kaiser Steel Corp. staggered into bankruptcy in 1987, the once-mighty manufacturer’s only products were lawsuits, debts and bitterness.

The company founded by Henry Kaiser in 1941 to churn out steel for World War II warships was felled by a devastating combination of market forces and financial opportunism.

But in the decade since the demise of San Bernardino County’s largest industrial employer, Kaiser Ventures Inc. has emerged from its ashes to fashion an assortment of leftover assets into a profitable and promising company.

The new Kaiser doesn’t make steel and it employs a bare-bones staff of about two dozen, compared with the more than 10,000 jobs Kaiser Steel provided in the 1960s.

By swapping its land for stakes in new businesses, Kaiser is involved in industries as varied as the new California Speedway racetrack, water and incarceration, and it’s poised to wade into the trash trade.

Two projects that could become Kaiser’s most profitable recently received major boosts.

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Last month, Kaiser began the permitting process to turn 450 of its remaining 600 acres of Fontana-area property into a huge center for trucking and warehousing operations. The site--near the intersections of interstates 10 and 15--is on one of the most heavily traveled truck routes in the country.

And the company’s most ambitious, controversial and financially risky project--the Eagle Mountain landfill--cleared a major hurdle in May when the Riverside County Planning Commission supported Kaiser’s plan to convert an abandoned desert iron ore mine into a massive garbage dump.

Eagle Mountain is considered the key asset in the company’s portfolio and has the potential to turn little-known Kaiser into a major player in the region’s waste management industry. Investors also believe the site could dramatically improve the company’s finances, though some were making similar predictions as early as 1993.

There’s no guarantee the hotly debated dump will win final approval. But after almost a decade of difficulties that persuaded a key partner to drop out and forced Kaiser to pump millions more than it had intended to into the effort, the company is cautiously optimistic.

If the dump materializes, it will join an interesting roster of Kaiser projects cobbled out of the ruins of the steel manufacturer. They include:

* The California Speedway, a 90,000-seat auto racetrack on the site of the former steel mill in the Fontana area. Kaiser traded the land for $50 million worth of stock in Penske Motorsports, which owns the track.

* A 400-inmate prison in a former Riverside County ghost town that was home to company miners who carved iron ore out of the Mojave Desert. Kaiser leases the site to the state for $675,000 annually.

* Well water once used to cool steel at the mill now flows to more than 100,000 Inland Empire homes and businesses. The Cucamonga County Water District pays Kaiser $5 million annually for the water.

“No one ever thought this company would be in the position it is in today,” said Ron Bitonti, who toiled for two decades in the Kaiser steel mill.

The fate of Kaiser Ventures is of great interest to Bitonti and 7,000 retired steelworkers and widows whose health insurance disappeared when the company was left broke in 1987, four years after producing its last metal.

Money intended to pay medical benefits for the former employees and their spouses evaporated in the chaotic last years of the company, leaving thousands of elderly to face the prospect of a retirement without the health insurance promised them.

Ironically, during World War II, Kaiser Steel had helped create Kaiser Permanente, which went on to become the nation’s largest nonprofit health maintenance organization. Though it at one time served the Fontana workers, it was never owned by Kaiser Steel and so was not involved in the company’s bankruptcy settlement.

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The only hope the former steelworkers had to regain health coverage was provided by the Bankruptcy Court’s decision to award them half the stock of Kaiser Ventures in 1988. At the time, there was little expectation that the shares would pay for more than a fraction of the insurance premiums.

But after some wild swings, Kaiser Ventures’ stock value has settled at about $11 a share, up fivefold since 1990. That increase has allowed the steelworkers group to sell some of its Kaiser stock to pay for full medical coverage for all retirees older than 65. The 35% stake they now hold is worth about $35 million.

“We’ve done very well over the past nine years,” said Richard Stoddard, a lawyer who represented the workers in the bankruptcy proceedings before becoming Kaiser’s chief executive in 1988.

“We’ve taken problem properties and converted them into successful projects,” Stoddard said from his company’s Rancho Cucamonga headquarters.

With a small staff and relatively modest revenue last year of about $15 million, Kaiser relies on partners to create new uses for the resources it once devoted to producing steel.

The racetrack--which cost Penske about $100 million to develop--is the best example of the company’s game plan. Kaiser spent $7.5 million to clean up 525 acres of its land, then swapped it for a stake of about 12% in Penske, a company that owns tracks in Pennsylvania and Michigan in addition to the new California Speedway.

“We got the permitting and we did the remediation work on the land,” Stoddard said. “But when it comes to car racing, we knew we couldn’t deliver the races here and we preferred not to be the ones building a track. So we got together with Penske, who could do those things.”

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The company used a similar technique to develop a 30-acre materials-recycling site. The $10-million facility is under construction across the street from the California Speedway and will be operated by Burrtec Waste Industries of Fontana when it opens next year.

For a while, it looked as if Kaiser would be able to pull off the same plan with its largest project, the proposed Eagle Mountain landfill.

The site, a gaping hole left by 40 years of iron ore mining, consists of 4,000 acres in the Mojave Desert about 80 miles east of Palm Springs. It would receive garbage sent by train on existing rail lines. The trash would be gathered at existing materials-recovery facilities on rail lines in Los Angeles County, where solid-waste companies truck the garbage they collect.

The site could eventually swallow a staggering 325 million tons of trash--20,000 tons a day for 50 years. (Southern Californians produce about 48,000 tons a day.)

The project, proposed in 1988, had been scheduled to be built by 1993. But it has been tangled in controversy and litigation that has sent the fortunes of Kaiser investors on a wild ride. Kaiser’s stock value jumps when Eagle Mountain’s outlook brightens--it rose to nearly $20 a share at one point--but sinks when it suffers setbacks.

Initially, Houston-based Browning-Ferris Industries planned to develop the site while paying Kaiser royalties on the land--$200,000 a month during the planning stage and more when the site opened.

But in 1994, San Diego County Superior Court Judge Judith McConnell handed the project what amounted to a three-year delay when she ruled that an environmental impact report was incomplete. (The case was moved to San Diego County because Riverside was a defendant in the lawsuit.)

McConnell told Kaiser to readdress issues ranging from the landfill’s effect on the desert tortoise, which the federal government has classified as a threatened species, to the danger of contaminating ground water. Exasperated by the delays, Browning-Ferris bailed out in 1994 after having made $6 million in payments to Kaiser and spent millions more on the project itself.

With Browning-Ferris gone, Kaiser was forced to take over the project and to begin using its own cash. The company has budgeted $7 million for the project, Stoddard said.

After spending millions of dollars and several years on planning, there might finally be light at the end of the tunnel. On the heels of the Planning Commission’s positive recommendation in May, Riverside County supervisors began public hearings last week for Eagle Mountain, setting up a vote for later this summer.

Though Kaiser needs about 20 permits from various government agencies before the landfill can be built, county approval has long been considered the biggest hurdle.

The company is optimistic despite facing an entirely reconstituted Board of Supervisors. Their approval would clear the way for the project to be returned to McConnell’s courtroom. Her support could allow the site to open in 1999.

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Along the way, some Riverside County residents are determined to persuade either the supervisors or the courts to dump the dump.

“It’s so irresponsible to think that you can just send all of L.A.’s garbage to the desert and that it just will go away,” said Dan Roman, a member of the Eagle Mountain Landfill Opposition Coalition.

Roman, who lives in Indio, said the project would foul ground water in the Eagle Mountain area and the desert air, and would disrupt Joshua Tree National Park, which comes within 1 1/2 miles of Eagle Mountain land.

Landfill organizers say that those issues have been addressed and that the dump’s remoteness from major population areas makes it a good solution to the region’s trash troubles.

If Kaiser succeeds in the political and legal arenas, it will seek a partner to construct and operate the landfill, Stoddard said.

The dump’s value depends on how many waste firms agree to put trash on trains and how many other new garbage repositories become available during the next decade.

If successful, Eagle Mountain will dwarf the company’s other operations, said analyst Seth Feinstein of Crowell, Weedon & Co. in Los Angeles.

“Kaiser’s water, land and its racetrack holdings are nice businesses, but I see Eagle Mountain as something much larger,” Feinstein said.

Another analyst, Bill Gibson of Cruttenden Roth in Santa Barbara, has valued the project at $250 million. By comparison, the total value of the rest of Kaiser’s assets is about $100 million.

Investors, though, seem wary of the roller-coaster ride Eagle Mountain has given stockholders in the past.

Kaiser stock hit a high of $19.50 in 1992, when the outlook appeared brightest for Eagle Mountain, but fell to $5.25 after Browning-Ferris bowed out. Shares of the company then leaped to $14 after the racetrack plan was announced in early 1996, before settling back into the $10 range. Kaiser stock closed down 62.5 cents at $11 on Thursday on Nasdaq.

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Unlike some stocks that rise and fall with quarterly earnings reports, Kaiser’s shares gyrate with its projects’ progress. With an astronomical price-to-earnings ratio of about 55, it’s the allure of the company’s potential rather than its present earnings that intrigues investors.

“I think the stock could easily double if the company gets the Eagle Mountain permitting,” Gibson said.

That outlook leaves Stoddard comfortable with the landfill project, despite the delays and the financial risks.

“If we knew in 1988 what we know now [about how long the project would take to get approval], we still would have gone forward with it,” he said.

The next two years will be focused on Eagle Mountain and on developing the Fontana-area land, Stoddard said. Kaiser will also consider acquisitions of companies that would benefit from its experience in converting troubled property into useful assets, Stoddard said, without naming any prospects.

Analyst Gibson likes Kaiser’s future despite the delays and uncertainties that have surrounded its largest project.

“It’s a fascinating company in many ways,” he said. “A few years ago, they basically had some polluted land and a hole in the desert. Now they have a viable company.”

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Kaiser Ventures Inc.

Headquarters: Rancho Cucamonga

CEO: Richard Stoddard

Employees: 29

Founded: 1988

‘96 revenue:$15.4 million

‘96 profit:$2.5 million

Share price: about $11.00

* Sources: Company reports; Bloomberg News

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Putting Resources to Use

Over the last several years, Kaiser Ventures has worked to develop new uses for land once owned by Kaiser Steel in the Fontana area and Riverside County:

Putting Resources to Use

Kaiser Ventures Inc./ Los Angeles Times