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                                                                  EXHIBIT 10.4.1
 
                 GUARANTY AND MANDATORY DSR DEPOSIT AGREEMENT

     THIS GUARANTY AND MANDATORY DSR DEPOSIT AGREEMENT is dated (for reference
purposes only) as of June 1, 1997 and is made and entered into in connection
with the provision by Bank of the credit facility referred to in paragraph 1
below, pursuant to which each Guarantor (as defined below) expects to derive
direct and/or indirect benefit.

     NOW, THEREFORE, the parties agree as follows:

1.   OBLIGATIONS GUARANTIED. For consideration, the adequacy, sufficiency and
receipt of which is hereby acknowledged, the undersigned (collectively,
"Guarantors" and individually each or any "Guarantor") unconditionally, jointly
and severally guarantee and promise to pay to UNION BANK OF CALIFORNIA, N.A.
("Bank") on demand, in lawful United States money, subject to the limitations
set forth in Section 19, below, all principal, interest, reasonable attorneys'
fees, expenses and other sums due or which become due pursuant to any or all of
the following: (a) that certain Reimbursement Agreement of even date herewith
(as from time to time amended the "Reimbursement Agreement") by and between West
Valley MRF, LLC, a California limited liability company, ("Borrower") and Bank,
pursuant to which Bank has issued or will issue its Letter of Credit to support
payment of those certain bonds in the aggregate principal amount not to exceed
$9,500,000 of the Variable Rate Demand Solid Waste Disposal Revenue Bonds (West
Valley MRF, LLC project), series 1997A (the "Bonds") being issued by the
California Pollution Control Financing Authority to assist the Borrower in
financing a part of the cost of the development, construction and equipping of
the Project (as defined in the Reimbursement Agreement); (b) any Borrower
Agreement (as defined in the Reimbursement Agreement), including, without
limitation, any deeds of trust or security agreements securing the Reimbursement
Agreement; and (c) all extensions, renewals and modifications of any of the
foregoing (individually and collectively, the "Obligations"), whether due or not
due, absolute or contingent, liquidated or unliquidated, legal or equitable,
whether Borrower is liable individually or jointly or with others, whether
incurred before, during or after any bankruptcy, reorganization, insolvency,
receivership or similar proceeding ("Insolvency Proceeding"), and whether
recovery thereof is or becomes barred by a statute of limitations or is or
becomes otherwise unenforceable, together with all expenses of, for and
incidental to collection, including reasonable attorneys' fees. This Guaranty is
in addition to any other guaranties of the Obligations. The maximum amount
payable by Guarantors to Bank hereunder shall be limited to the maximum amount
specified in Section 19, below. Capitalized terms used herein without definition
shall have the respective meanings ascribed thereto in the Reimbursement
Agreement.

2.   REINSTATEMENT.  All of Bank's rights pursuant to this Guaranty continue
with respect to amounts previously paid to Bank on account of any Obligations
which are thereafter restored or returned by Bank, whether in an Insolvency
Proceeding of Borrower or for any other reason, all as though such amounts had
not been paid to Bank, and each Guarantor's liability under this Guaranty (and
all its terms and provisions) shall be reinstated and revived as provided
herein, notwithstanding any surrender or cancellation of this Guaranty.  Bank,
in its sole discretion, may determine whether any amount paid to it must be
restored or returned; provided, however, that if Bank elects to contest any
claim for return or restoration, each Guarantor agrees to indemnify and hold
Bank harmless from and against all costs and expenses, including reasonable
attorneys' fees, expended or incurred by Bank in connection with such contest.
if any Insolvency Proceeding is commenced by or against Borrower or any
Guarantor, at Bank's election, each Guarantor's obligations under this Guaranty
shall immediately and without notice or demand become due and payable, whether
or not then

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otherwise due and payable.

3.   AUTHORIZATION.  Each Guarantor authorizes Bank, without notice and without
affecting such Guarantor's liability under this Guaranty, from time to time,
whether before or after any revocation of this Guaranty, to (a) renew,
compromise, extend, accelerate, release, subordinate, waive, amend and restate,
or otherwise amend or change, the interest rate, time or place for payment or
any other terms of all or any part of the Obligations; (b) accept delinquent or
partial payments on the Obligations; (c) take or not take security or other
credit support for this Guaranty or for all or any part of the Obligations, and
exchange, enforce, waive, release, subordinate, fail to enforce or perfect, sell
or otherwise dispose of any such security or credit support; (d) apply proceeds
of any such security or credit support and direct the order or manner of its
sale or enforcement as Bank, in its sole discretion, may determine; and (e)
release or substitute Borrower or any Guarantor or other person or entity liable
in respect of all or any part of the Obligations.

4.   WAIVERS.  To the maximum extent permitted by law, each Guarantor waives (a)
all rights to require Bank to proceed against Borrower or proceed against,
enforce or exhaust any security for the Obligations or to marshal assets or to
pursue any other remedy in Bank's power whatsoever; (b) all defenses arising by
reason of:  any disability or other defense of Borrower, the cessation for any
reason of the liability of Borrower, any defense that any other indemnity,
guaranty or security was to be obtained, any claim that Bank has made such
Guarantor's obligations more burdensome or more burdensome than Borrower's
obligations, and the use of any proceeds of the Obligations other than as
intended or understood by Bank or such Guarantor; (c) all presentments, demands
for performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty, and all other
notices or demands to which such GUarantor might otherwise be entitled; (d) all
conditions precedent to the effectiveness of this Guaranty; (e) all rights to
file a claim in connection with the Obligations in an Insolvency Proceeding
filed by or against Borrower; (f) all rights to require Bank to enforce any of
its remedies and (g) until the Obligations are satisfied or fully paid, with
such payment not subject to return:  (i) all rights of subrogation,
indemnification or reimbursement, (ii) all rights of recourse to any assets or
property of Borrower or to any collateral or credit support for the Obligations,
(iii) all rights to participate in or benefit from any security or credit
support Bank may have or acquire, and (iv) all rights, remedies and defenses
such Guarantor may have or acquire against Borrower; provided however that
                                                     -------- -------     
anything in this Guaranty to the contrary notwithstanding, the Guarantors shall
only be required to waive and forebear the enforcement of any rights of
subrogation, indemnification or reimbursement against any person or entity so
long as such person or entity is in default in the payment of any obligation due
and owing to Bank; during the continuance of any such default all such rights of
subrogation, indemnification and reimbursement shall be subordinated as provided
in Section 6 below.  Bank may foreclose, either by judicial foreclosure or by
exercise of power of sale, any deed of trust which secures any Obligations, and
even though such foreclosure or exercise may destroy or diminish the rights of
the Guarantors, or any of them, against Borrower, each Guarantor shall remain
liable for any part of the Obligations remaining unpaid after foreclosure.  Each
Guarantor understands that if Bank forecloses by trustee's sale on a deed of
trust securing any of the Obligations, Guarantor would then have a defense
preventing Bank from thereafter enforcing Guarantor's liability for the unpaid
balance of the secured Obligations.  This defense arises because the trustee's
sale would eliminate Guarantor's right of subrogation, and therefore Guarantor
would be unable to obtain reimbursement from Borrower.  Guarantor specifically
waives this defense and all rights and defenses that Guarantor may have because
the Obligations are secured by real property.  This means, among other things:
(1) Bank may collect from Guarantor without first foreclosing on any real or
personal property collateral pledged by Borrower; and (2) if Bank forecloses on
obligations may be reduced only by

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the price for which the collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price; and (B) Bank may collect from
Guarantor even if Bank, by foreclosing on the real property collateral, has
destroyed any right Guarantor may have to collect from Borrower. This is an
unconditional and irrevocable waiver of any rights and defenses Guarantor may
have because the Obligations are secured by real property. these rights and
defenses include, but are not limited to, any rights or defenses based upon
Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure. Each
Guarantor agrees that such Guarantor shall remain liable (subject to the limits
set forth in Section 19, below) for any part of the Obligations remaining unpaid
after a trustee's sale, although such Guarantor would not become subrogated to
any part of the Obligations that such Guarantor has paid and would therefore be
unable to obtain reimbursement for those payments from Borrower. Each Guarantor
may therefore incur a partially or totally unreimbursable liability under the
Guaranty. Each Guarantor waives all benefits under California Civil Code
sections 2808, 2809, 2810, 2819, 2839, 2845, 2846, 2848, 2849, 2850, 2855, 2899
and 3433 and California Code of civil procedure sections 580a, 580b, 580d and
726.

5.   GUARANTOR TO KEEP INFORMED.  Each Guarantor warrants having established
with Borrower adequate means of obtaining, on an ongoing basis, such information
as such Guarantor may require concerning all matters bearing on the risk of
nonpayment or nonperformance of the Obligations.  Each Guarantor assumes sole,
continuing responsibility for obtaining such information from sources other than
from Bank.  Bank has no duty to provide any information to any Guarantor until
Bank receives such Guarantor's written request for specific information in
Bank's possession and Borrower has authorized Bank to disclose such information
to such Guarantor.

6.   SUBORDINATION.  All liabilities and commitments of Borrower to any
Guarantor, and all liabilities and commitments of any guarantor of any of the
Obligations to any other Guarantor, which presently or in the future may exist
("Guarantor Claims") are hereby subordinated to the Obligations; provided
however that so long as the party against which such Guarantor Claims are
asserted is not in default in the payment of any obligations due and owing to
Bank, payments and distributions from Borrower to any Guarantor or among or
between any of the guarantors (including any Guarantor) of any of the
Obligations shall be permitted in the ordinary course of business.  Whenever any
such default shall have occurred and be continuing, Guarantor Claims against
such party in default will be enforced, and performance thereon received by any
Guarantor only as a trustee for Bank, and each Guarantor will promptly pay over
to Bank upon demand all proceeds recovered for application to the Obligations
without reducing or affecting such Guarantor's liability under other provisions
of this Guaranty.

7.   REPRESENTATIONS AND WARRANTIES.  The Guarantors represent and warrant to
the Bank as follows:

     (a)  Corporate Existence and Power. Each Guarantor (i) is a corporation
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duly organized, validly existing and in good standing under the laws of the
State of Delaware, (ii) is duly qualified or licensed as a foreign corporation
and is in good standing in the State of California and in each other
jurisdiction in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed and (iii) has all requisite
corporate power and authority to own or lease and operate its properties and to
carry on its business as now conducted and as proposed to be conducted.
     
     (b)  Authorization.  The execution, delivery and performance by the
          -------------
Guarantors of this Guaranty, and the consummation of the transactions
contemplated hereby and thereby, are within each Guarantor's corporate powers,
have been duly authorized by all necessary corporate action of

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such Guarantor and do not contravene such Guarantor's charter documents or
bylaws.
     
     (c)  Binding Effect. This Guaranty has been duly executed and delivered by
          --------------  
the Guarantors. This Guaranty is the legal, valid and binding obligation of each
Guarantor, enforceable against such Guarantor in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting creditors' rights
generally.
     
     (d)  Other Information. To the knowledge of Guarantors, no information,
          -----------------
exhibit or report furnished by any Guarantor to Bank in connection with the
Reimbursement Agreement or this Guaranty contains any material misstatement of
fact or omits to state a material fact or any fact necessary to make the
statements contained therein, in light of the circumstances in which made, not
misleading.
     
     (e)  Litigation. Except as disclosed in writing to Bank by letter dated
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June 13, 1997, there is no action, suit, investigation, litigation or proceeding
affecting the Guarantors pending or, to the best knowledge of the Guarantors,
threatened before any court, governmental agency or arbitrator (a) that would be
reasonably likely to have a materially adverse effect on the business, condition
(financial or otherwise), operations, performance, properties or prospects of
the Guarantors or (b) that purports to affect the legality, validity or
enforceability of this Guaranty or the consummation of the transactions
contemplated hereby.
     
     (f)  Financial Statements. The audited consolidated balance sheet of Kaiser
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Ventures Inc., a Delaware corporation ("KVI") and its Subsidiaries as of
December 31, 1996, and the related audited consolidated statements of income,
retained earnings and cash flows of KVI and its Subsidiaries for the fiscal year
then ended, fairly present the consolidated financial condition of KVI and its
Subsidiaries as of such date and the consolidated results of the operations of
KVI and its Subsidiaries for the fiscal year ended on such date, all in
accordance with generally accepted accounting principles applied on a consistent
basis. The unaudited consolidated balance sheet of KVI and its Subsidiaries as
of March 30, 1997, and the related unaudited consolidated statements of
operation, retained earnings and cash flows of KVI and its Subsidiaries for the
three-month period then ended, reviewed (subject to normal year-end audit
adjustments) by the chief financial officer or chief accounting officer of KVI
as having been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, fairly present the consolidated
financial condition of KVI and its Subsidiaries as of such date and the
consolidated results of the operations of KVI and its Subsidiaries for the
three-month period ending on such date. Since March 31, 1997 there has been no
materially adverse change in the business, condition (financial or otherwise),
operations, performance, properties or prospects of KVI or any of its
Subsidiaries. KVI and its Subsidiaries have no material contingent liabilities,
except as disclosed in such consolidated financial statements or the notes
thereto, that would be reasonably likely to have a materially adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of KVI or any of its Subsidiaries.

     g)   Burdensome Agreements. Except as otherwise disclosed in writing,
          ---------------------
neither KVI nor any of its Subsidiaries is a party to any indenture, loan
agreement, credit agreement, lease or other agreement or instrument, or subject
to any charter or corporate restriction, that would be reasonably likely to have
a materially adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of KVI or any of its
Subsidiaries or on the ability of KVI or any of its Subsidiaries to carry out
its obligations under this Guaranty.

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     h)  Taxes. KVI and its Subsidiaries have filed, or there has been filed on
         -----
their behalf, all tax returns (federal, state, local and foreign) required to be
filed before the date of the making of this representation and warranty, and KVI
and its Subsidiaries have paid all taxes shown thereon to be due, including
interest, additions to taxes and penalties, or have provided adequate reserves
for the payment thereof.

     (i)  Title to Properties; Ownership. KVI and its Subsidiaries have good and
          ------------------------------
marketable title to all material properties, real or personal, purported to be
owned thereby. KVI is the legal and beneficial owner of all of the outstanding
capital stock of Kaiser Recycling Corporation, a Delaware corporation, and such
stock is not subject to any lien or other encumbrance other than the lien of the
stock pledge agreement securing KVI's obligations under the KVI Performance
Guaranty.

     (j)  Regulation. Neither Guarantor is currently subject to financial,
          ----------
organizational or rate regulation (i) under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment
Company Act of 1940 or any Governmental Rule limiting its ability to incur Debt
or (ii) by the California Public Utilities Commission.

8.   COVENANTS.  The Guarantors covenant and agree that, unless Bank otherwise
consents in writing and so long the Obligations remain unpaid

     (a)  Each of the Guarantors will, preserve, renew and keep in full force
and effect its corporate existence (in the jurisdiction thereof) and the
material rights, privileges, franchises and governmental approvals necessary or
desirable for the normal conduct of its business.

     (b)  Neither Guarantor will merge or consolidate with or into, or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to any Person, unless, in the case of any merger or
consolidation, such Guarantor is the surviving entity; provided however that the
Guarantors shall be permitted, upon notice to the Bank, to transfer any or all
of the assets or capital stock of KRC to Burrtec Waste Industries, Inc. ("BWI")
or any wholly-owned subsidiary of BWI or KVI.

     (c) KVI will deliver the following to the Bank:

         (i)   as soon as available and in any event within 45 days after the
end of each of the first three quarters of each fiscal year of KVI, a copy of
the quarterly report on Form 10-Q filed by KVI with the SEC with respect to such
fiscal quarter;

         (ii)  as soon as available and in any event within 105 days after the
end of each fiscal year of KVI , a copy of the annual report on Form 10-K filed
by KVI with the SEC with respect to such fiscal year, in each case containing
financial statements audited by Ernst & Young or another "Big Six" accounting
firm, together with a certificate of such accounting firm stating that in the
course of the regular audit of the business of KVI and its Subsidiaries, which
audit was conducted by such accounting firm in accordance with generally
accepted auditing standards, such accounting firm has obtained no knowledge that
an Event of Default has occurred and is continuing or, if in the opinion of such
accounting firm an Event of Default has occurred and is continuing, a statement
as to the nature thereof.

         (iii) promptly upon the filing thereof, a copy of any report on 
Form 8-K filed by KVI with the SEC;

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         (iv)   as soon as available and in any event within 30 days after the
end of each fiscal year of KVI, a budget, an operating plan, and an operating-
profit and cash-flow projection for KVI for the then current fiscal year, as
prepared by KVI and approved by the Guarantor's board of directors;

         (v)    forthwith upon KVI's becoming aware of the occurrence of any
Event of Default relating to KVI, a certificate of the chief financial officer
or chief accounting officer of KVI setting forth the details thereof and the
action that KVI is taking or proposes to take with respect thereto;

         (vi)   promptly after the commencement thereof, notice of all material
actions, suits and proceedings before any Governmental Authority or arbitrator,
affecting KVI or any of its Subsidiaries, of the type described in Section
7(e), above;

         (vii)  promptly after the occurrence thereof, notice of any event or
condition that constitutes or causes a materially adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of KVI or any of its Subsidiaries, if such event or
condition could materially impair either Guarantor's ability to perform its
obligations under this Guaranty; and

         (viii) promptly upon request, such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of either Guarantor as the Bank may from time to time
reasonably request. All non-public information will be treated confidentially by
the Bank and will not be distributed or otherwise made available by the Bank to
any person or entity, other than the Bank's employees, authorized agents or
representatives who need to review or be informed of such information in
connection with their employment by the Bank.
 
     (d) KVI will maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or associations
that have an A.M. Best Co. rating of at least B+:6 or a Solvency International
or equivalent rating as in effect on the Date of Issuance for such insurance
company or association, in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which KVI or such Subsidiary operates provided,
                                                                   --------
however, that in the case of any liability insurance (excluding directors and
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officers liability insurance), such insurance shall name the Bank as an
additional insured and shall provide for at least 30 days' prior written notice
to the Bank of any amendment, nonrenewal or cancellation thereof (except that
only 10 days' notice need be provided for cancellation due to the Guarantor's
failure to pay thereunder).

     (e) KVI will maintain its fiscal year and fiscal quarters so that they
correspond to the calendar year and calendar quarters.

9.   ASSIGNMENTS.  Without notice to the Guarantors, Bank may assign the
Obligations and this Guaranty, in whole or in part, and may disclose to any
prospective or actual purchaser of all or part of the Obligations any and all
information Bank has or acquires concerning either Guarantor, this Guaranty and
any security for this Guaranty provided that each such prospective or actual
purchaser must agree to maintain the confidentiality of all such information.

10.  COUNSEL FEES AND COSTS.  The prevailing party shall be entitled to
attorneys' fees (including

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a reasonable allocation for any appropriately documented fees of Bank's internal
counsel), and all other costs and expenses which it may incur in connection with
the enforcement or preservation of its rights under, or defense of, this
Guaranty or in connection with any other dispute or proceeding relating to this
Guaranty, whether or not incurred in an Insolvency Proceeding, arbitration,
litigation or other proceeding.

11.  [INTENTIONALLY OMITTED]

12.  MULTIPLE GUARANTORS/BORROWERS.  When there is more than one Borrower named
herein, or when this Guaranty is executed by more than one Guarantor, then the
words "Borrower" and "Guarantor," respectively, shall mean all and any one or
more of them, and their respective successors and assigns, including debtors-in-
possession and bankruptcy trustees, and words used herein in the singular shall
be considered to have been used in the plural where the context and construction
so requires in order to refer to more than one Borrower or Guarantor, as the
case may be.  This Guaranty may be executed in any number of counterparts and by
different parties hereto on separate counterparts.  Each counterpart, when so
executed and delivered, shall be deemed to be an original and all counterparts,
taken together, shall constitute but one and the same Guaranty.

13.  WAIVER OF JURY TRIAL.  EACH GUARANTOR AND BANK HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS GUARANTY, ANY OF THE
OBLIGATIONS, OR ANY RELATED AGREEMENTS OR INSTRUMENTS, OR IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DISCUSSIONS, DEALINGS OR ACTIONS OF SUCH
PARTIES OR ANY OF THEM (WHETHER ORAL OR WRITTEN) WITH RESPECT THERETO, OR TO THE
TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.  EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED IN ACCORDANCE WITH THE PROVISIONS OF THE ALTERNATIVE
DISPUTE RESOLUTION AGREEMENT REFERRED TO IN PARAGRAPH 18 BELOW.  EACH GUARANTOR
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER DOCUMENT TO WHICH IT
IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK AGREEING
TO THE CREDIT EXTENSION REFERRED TO HEREIN.

14.  INTEGRATION/SEVERABILITY/AMENDMENTS.  This Guaranty is intended by each of
the Guarantors and Bank as the complete, final expression of their agreement
concerning its subject matter.  It supersedes all prior understandings or
agreements with respect thereto and may be changed only by a writing signed by
Bank and the Guarantor intended to be bound by such writing.  No course of
dealing, or parol or extrinsic evidence shall be used to modify or supplement
the express terms of this Guaranty.  If any provision of this Guaranty is found
to be illegal, invalid or unenforceable, such provision shall be enforced to the
maximum extent permitted, but if fully unenforceable, such provision shall be
severable, and this Guaranty shall be construed as if such provision had never
been a part of this Guaranty and the remaining provisions shall continue in full
force and effect.

15.  JOINT AND SEVERAL.  If more than one Guarantor signs this Guaranty, the
obligations of each Guarantor under this Guaranty are joint and several in
accordance with the terms of this Agreement,

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and independent of the Obligations and of the liabilities and commitments of any
other person or entity. A separate action or actions may be brought and
prosecuted against any Guarantor, whether action is brought against Borrower,
any other Guarantor or any other person or entity liable in respect of all or
any part of the Obligations, and whether Borrower or such others are joined in
any such action.

16.  NOTICE.  Any notice given by any party under this Guaranty shall be
effective only upon its receipt by the other party and only if (a) given in
writing and (b) personally delivered or sent by United States mail, postage
prepaid, and addressed to Bank or Guarantor at their respective addresses for
notices indicated below. Each Guarantor and Bank may change the place to which
notices, requests, and other communications are to be sent to them by giving
written notice of such change to the other.

17.  CALIFORNIA LAW.  Subject to paragraph 13 of this Guaranty, this Guaranty
shall be governed by and construed according to the laws of California, and each
Guarantor submits to the nonexclusive jurisdiction of the state or federal
courts in California.

18.  DISPUTE RESOLUTION.  This Guaranty hereby incorporates any alternative
dispute resolution agreement previously, concurrently or hereafter executed
between any Guarantor and Bank.

19.  LIMITATION ON GUARANTOR'S LIABILITY.  Notwithstanding the provisions of
Section 1 hereof or anything else to the contrary in this Guaranty, Guarantor's
liability under this Guaranty for the obligations shall not exceed the sum of
the following (collectively, the "Guaranteed Liability Amount"):  (a) the lesser
of (i) FOUR MILLION EIGHT HUNDRED TWENTY THOUSAND TWO HUNDRED SEVENTY FIVE AND
NO/100 DOLLARS ($4,820,275.00); or (ii) fifty percent (50%) of all obligations
representing principal outstanding at the time of demand by Bank under this
Guaranty (the "Principal Amount") without reduction for any payments with
respect to the Obligations received by Bank after such demand from any source
other than a Guarantor hereunder including, without limitation, any payments
from Borrower or any other guarantor of the Obligations or derived from any
collateral securing the Obligations; (b) all interest, fees and like charges
owing and allocable to the Principal Amount as reasonably determined by Bank;
and (c) without allocation in respect of the Principal Amount, all costs,
attorneys' fees and expenses of Bank relating to or arising out of the
enforcement of the Obligations and all indemnity liabilities of Guarantor under
this Guaranty; provided however, that Guarantors' liability for all costs, fees,
expenses and indemnity liabilities specified in the preceding clause (c) shall
terminate upon receipt by Bank from Guarantors of the full Guaranteed Liability
Amount.  The foregoing limitation applies only to Guarantor's liability under
this particular Guaranty.  Unless Bank otherwise agrees in writing, every other
guaranty previously, concurrently or hereafter given to Bank by Guarantor is
independent of this Guaranty and of every other such Guaranty.  Without notice
to Guarantor, Bank may apply or reapply any amounts received in respect of the
Obligations from any source other than from Guarantor to that portion of the
obligations not included with the Guaranteed Liability Amount.

20.  EVENTS OF DEFAULT.  The occurrence of any of the following events shall be
an "Event of Default" hereunder:

     (a)  The occurrence of an Event of Default (as defined in Section 8 of the
Reimbursement Agreement); or

     (b)  Any representation or warranty made any Guarantor hereunder or in any
statement,

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certificate or document delivered by such Guarantor in connection with the this
Guaranty shall prove to have been incorrect in any material respect when made;
or

     (c)  Either Guarantor shall fail to perform or observe any other material
term, covenant or agreement contained in this Guaranty and any such failure
shall be impossible for such Guarantor to remedy or which shall remain
unremedied for thirty (30) days after written notice thereof shall have been
given to such Guarantor by Bank; provided however any such failure which is not
impossible to cure but which is not reasonably susceptible of cure within a 30-
day period shall not constitute an Event of Default hereunder unless either (A)
the Guarantors shall fail to initiate and diligently pursue all action necessary
to remedy such failure; or (B) such failure is not remedied within sixty (60)
days after written notice to the Guarantors from the Bank; or

     (d)  Either Guarantor shall (i) fail to make any payment, equal to or
exceeding $100,000 of any principal of or interest or premium on any Debt (as
defined below) when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt, or (ii) fail to perform or observe any material term,
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any Debt when required to be performed or
observed, and such failure shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such failure to
perform or observe is to accelerate, or to permit the acceleration of, the
maturity of any Debt, the unpaid principal amount of which then equals or
exceeds $100,000. "Debt" of either Guarantor (which shall not include any
indebtedness hereunder) means (A) indebtedness for borrowed money or for the
deferred purchase price of property or services in respect of which either
Guarantor is liable, contingently or otherwise, as obligor, guarantor or
otherwise, or in respect of which any Guarantor otherwise assures a creditor
against loss and (B) obligations under leases which shall have been or should
be, in accordance with generally accepted accounting principles, recorded as
capital leases in respect of which obligations or such Guarantor is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations any Guarantor assures a creditor against loss.

21.  MANDATORY DEPOSIT INTO DSR ACCOUNT.  Upon the occurrence and during the
continuance of an Event of Default hereunder, (but without limiting any other
rights or remedies available to Bank under the Reimbursement Agreement and this
Guaranty or otherwise available under California law, all of which rights and
remedies are hereby expressly reserved) an amount equal to the Guaranteed
Liability Amount shall become immediately due and payable by the Guarantors to
the Bank, without presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by the Guarantors. Upon receipt
by Bank of the amount (or any portion thereof) required to be paid by the
Guarantors under this Paragraph 21, Bank shall deposit the Principal Amount
thereof (together with the accrued interest received by the Bank allocable to
such Principal Amount) into the DSR Account established pursuant to the
Reimbursement Agreement, to be applied in accordance with the provisions of the
Reimbursement Agreement. Either of the following two events shall constitute a
"Payment Event of Default" hereunder: (1) any intentional misrepresentation of a
material fact by either Guarantor; or (2) failure by the Guarantors to deposit
the Guaranteed Liability Amount into the DSR Account within ninety (90) days
after the occurrence of an Event of Default. Upon the occurrence of a Payment
Event of Default hereunder, the Bank shall have the right, at its option, to
declare an Event of Default under the Reimbursement Agreement and to exercise
any and all rights and remedies provided thereunder.

22.  TERMINATION.  Subject to reinstatement pursuant to Paragraph 2 above, this
Guaranty and

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<PAGE>
 
all of the rights of the bank hereunder shall terminate upon the earlier of (i)
receipt by the bank of the guaranteed liability amount, or (ii) the payment in
full of all of the obligations.

     Each Guarantor acknowledges having received a copy of this Guaranty and
having made each waiver contained in this Guaranty with full knowledge of its
consequences.

Dated as of June 1, 1997

                              GUARANTORS

                              KAISER VENTURES INC.,
                              a Delaware corporation


                              By:  /s/ James F. Verhey
                                   -------------------
                                   Name:  James F. Verhey
                                   Title:  Sr. Vice President Finance & CFO


                              KAISER RECYCLING CORPORATION,
                              a Delaware corporation


                              By:  /s/ James F. Verhey
                                   -------------------
                                   Name:  James F. Verhey
                                   Title:  Sr. Vice President Finance & CFO

                           
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