Document:

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                                                                    EXHIBIT 10.5
                                                                    ============

                             Amended and Restated
                             Employment Agreement
                                      of
                                 Anthony Silva

     This AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made and entered into
effective as of September 19, 2000 by and between ANTHONY SILVA ("Employee") and
KAISER VENTURES INC. ("Kaiser").

                                   Recitals

     A.   Employee is currently employed by Kaiser as Vice President, Resource
Development and Environmental Services pursuant to that certain Employment
Agreement dated, effective as of January 15, 1998, as amended by that certain
First Amendment to the Employment Agreement of Anthony Silva, between Employee
and Kaiser dated as of January 6, 2000.

     B.   The intent of this Agreement is to further amend the Employment
Agreement, as amended, and thus to set forth the current agreement and
understanding of Employee and Kaiser with regard to Employee's continued
employment by Kaiser.

     NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     1.   Employment, Positions and Duties.  Kaiser hereby continues the
employment of Employee upon the terms and conditions set forth in this
Agreement.  Employee's position with Kaiser shall be Vice President, Resource
Development and Environmental Services.  Employee shall have the
responsibilities and duties normally incident to such position, including, but
not limited to, those duties and responsibilities set forth in Schedule "A"
                                                               ============
attached hereto and incorporated herein by this reference and such other duties
and responsibilities as may be reasonably assigned to him from time-to-time by
Kaiser's Executive Vice President or Chief Executive Officer.  Employee agrees
to devote his full business time and attention to the discharge of his duties
and responsibilities under this Agreement.

     2.   Term.  Employee's employment under the terms of this Agreement shall
commence as of September 19, 2000, and shall continue until terminated as
provided herein; provided, however, upon Employee's termination, Employee shall
receive the severance compensation provided herein.

     3.   Base Salary.  Employee's current annual base salary is One Hundred
Seventeen Thousand Eight Hundred Thirty Five Dollars ($117,835) per year.

     Prior to the first meeting of the Board of Directors in any calendar year,
the Human Relations Committee of the Board will review Employee's salary and
report its recommendations for any revision to the full Board at such meeting.

     4.   Bonus Program.

          a.   Annual Performance Bonus. In addition to his base salary,
Employee shall be entitled to participate in the bonus program of Kaiser
applicable to senior executives as it

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may be amended from time to time. The timing, size and/or amount of any bonus
awarded to Employee during the term of this Agreement will be determined
annually in accordance with the process set forth in Paragraph 3 above for the
annual base salary review and based upon the bonus program developed from time
to time by the Human Relations Committee and approved by the Board of Directors.
The annual performance bonus for any year, if any, will be based upon such
review. The current annual performance plan for executive officers of Kaiser was
adopted by the Board of Directors on January 6, 2000, and such plan (as it may
be amended from time to time for years after 2000) is incorporated herein by
this reference.

          b.   Long Term Incentive Plan. Employee shall be eligible to receive
payments in accordance with the terms of the Long Term Transaction Incentive
Plan adopted by Kaiser effective September 19, 2000.

     5.   Stock Options and Other Stock Related Incentives.  Employee shall be
eligible for the grant of incentive stock options, non-qualified stock options
and other forms of stock related incentives from time-to-time in the discretion
of the Stock Option Committee of the Board of Directors.  The timing, size and
amount of any future stock options or other stock related incentives will be
determined generally in accordance with the process used to determine the award
of any bonus to Employee.  The grant and exercise of the stock options and other
stock related incentives shall generally be subject to and governed by the terms
of an approved stock plan or stock option plan or any similar or successor
option plan.  However, the Stock Option Committee may award stock options,
restricted stock or other stock related incentives outside an approved plan in
its discretion.

     Kaiser acknowledges and agrees that all stock options granted to Employee
prior to the date of this Agreement are fully vested in Employee.

     6.   Other Benefits.  Employee will be entitled to participate in all
benefits provided by Kaiser to its employees and to senior executives in
accordance with and subject to Kaiser's polices and procedures as they may exist
from time-to-time, including, but not limited to, medical and dental insurance,
life insurance, disability insurance, 401(k) savings plan, any pension plan,
deferred compensation plan, education and seminar reimbursement, car allowance,
and reimbursement of reasonable expenses for company business.  These benefits
shall include life insurance for the benefit of Employee with a face amount of
not less than Employee's annual base salary, except that Kaiser may self-insure
if insurance is not available on a commercially reasonable basis.  Employee
shall be entitled to three (3) weeks of paid vacation per year until Employee
has been employed at Kaiser for five (5) years at which time Employee shall be
entitled to four (4) weeks of paid vacation per year.

     7.   Restricted Stock.  Any restricted stock issued by Kaiser in lieu of
cash payments in connection with Employee's base salary or any bonus, shall be
subject to the terms and conditions of a stock restriction agreement which may
provide, among other things, for the forfeiture of such stock in phases if
Employee should voluntarily terminate his employment with Kaiser or upon
Employee's termination for "cause", as defined herein.

     8.   Death Benefits.  In the event of Employee's death, Kaiser shall pay to
Employee's personal representative or his estate, Employee's salary and benefits
through the end of the month in which the death occurred plus a ratable portion
of Employee's anticipated bonus for the year through the date of Employee's
death.  Employee's anticipated bonus shall be calculated by multiplying
Employee's average percentage bonus paid over the prior five years by Employee's
then

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annual base salary. If a bonus has been earned by Employee for the preceding
fiscal year but has not yet been paid prior to the death of Employee, Employee's
estate or personal representative shall be paid the full amount of the earned
but unpaid bonus. In addition, Kaiser shall pay, from time to time, any payment
that would be due under the terms of the Long Term Transaction Incentive Plan as
provided in Paragraph 4(b) of this Agreement. The proceeds from any such life
insurance shall be for the sole benefit of Employee's designated beneficiaries
or if there are no designated beneficiaries, Employee's estate. Upon an
Employee's death, all restricted stock issued to Employee for past services
(e.g. bonus stock), shall immediately vest and all restricted stock initially
issued for anticipated future services (e.g. salary stock) will vest ratably
through the date of death. Employee's estate or personal representative shall
have at least one (1) year after the date of Employee's death while in the
employment of Kaiser in which to exercise all vested Stock Options.

     9.   Disability Benefits.  In the event of the disability of Employee for
any reason, Kaiser shall continue to pay to Employee his salary and benefits
less short-term disability payments until long-term disability payments are made
to Employee but in no event shall such salary and benefit payments continue for
longer than six (6) months from the date of disability.  In addition, upon
permanent disability, the vesting of all retirement and deferral compensation
plans and all outstanding options, restricted stock or other stock related
incentives shall continue to occur for a period of two (2) years after the date
of disability in the same manner as if Employee were still employed by Kaiser
during that period.

     10.  Deductions.  Applicable federal and state income taxes, social
security contributions (FICA), Medicare contributions, medical insurance
premiums and any other appropriate or customary deductions shall be withheld
from any compensation paid to Employee by Kaiser.

     11.  Constructive Termination.  Employee shall be deemed to have been
constructively discharged upon the occurrence of any of the following events:

          a.   The assignment to Employee of duties materially and adversely
inconsistent with Employee's positions as of the effective date of this
Agreement. This includes a change in reporting responsibilities, authority
including title, or responsibilities; provided, however, a lateral transfer
within Kaiser or to an Affiliate shall not be deemed a constructive termination;

          b.   Any requirement that Employee permanently relocate to an office
more than 50 miles from the then location to which he is assigned as of the
effective date of this Agreement; and

          c.   Any failure to provide Employee with compensation and benefits in
the aggregate on terms not materially less favorable than those enjoyed by
Employee under this Agreement immediately prior to a Material Change, or the
subsequent taking of any action that would materially reduce any of Employee's
compensation and benefits in effect at the time of the Material Change unless
such compensation and benefits are substantially equally reduced for executive
officers of Kaiser as a group (as measured by a percentage) or there is less
than a ten percent (10%) reduction in compensation or benefits.

     then, at Employee's option, exercisable within ninety (90) days of the date
Employee knew, or should have known exercising reasonable care, of the
occurrence of any of the foregoing events and the expiration of any applicable
cure period, Employee shall have the right to terminate

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his employment by written notice to Kaiser, and on the date of such termination
Kaiser will pay Employee the compensation and benefits described in Paragraph 13
below.

     12.  Compensation Payable Upon Actual or Constructive Termination.  In the
event Employee is terminated by Kaiser for any reason (including a constructive
termination) except for death, permanent disability or for cause, as defined
below, Kaiser shall pay to Employee the following compensation and Employee
shall receive the following benefits as severance benefits:

          a.   if the termination is effective after March 31 of any year, an
amount equal to the pro rata portion of the annual performance bonus (that
Employee would have been eligible to earn for the year of calculated by
multiplying Employee's average percentage bonus paid over the prior five years
(or such lesser period of time during which Employee was eligible to receive a
bonus) by Employee's then annual base salary ;

          b.   an amount equal to the greater of Employee's then current annual
base salary or his base salary in effect on the date of this Agreement;

          c.   an amount equal to one year's average annual bonus (cash and
stock, but not including stock options or stock grants outside of the annual
bonus) as calculated by multiplying Employee's average percentage bonus paid
over the prior five years or such lesser period of time during which Employee
was eligible to receive bonus by the greater of Employee's then current base
salary or his base salary in effect on the date of this Agreement;

          d.   any payments that become due Employee under the terms of Kaiser's
Long Term Transaction Incentive Plan (which payments can continue to be made to
Employee beyond the date of Employee's termination in accordance with the terms
of the Long Term Transaction Incentive Plan);

          e.   Kaiser shall continue to provide and pay its portion of all of
Employee's health, welfare, insurance and other benefits for a period of twelve
(12) months following the date of termination, including Kaiser's portion of any
retirement and deferred compensation plan such as Kaiser's 401(k) plan. After
such termination, Employee shall be entitled, for a period of three years to
exercise his stock options as to any then vested, including any options vesting
within one year of termination as provided in the next sentence, notwithstanding
any other applicable provision contained in any option agreement. In addition to
the foregoing related to stock options, with respect to any restricted stock or
other stock related incentives, Employee shall continue to vest in such
securities for a period of one-year following termination; and

          f.   Employee shall have the right to participate proportionately in
stock buyback or dividend distribution in proportion to shares owned together
will all other shareholders.

     For purposes of this Agreement, "average percentage bonus paid over the
prior five years" shall mean the average percentage bonus (cash and stock, but
not including either (i) stock options or stock grants outside of the annual
bonus or (ii) amounts paid under the Long Term Incentive Plan as described in
4(c) below) received by Employee for the five years preceding the year of
termination (or for such lesser period in which bonus payments were received)
compared to his base salary in each of those years..

     Except for payments made pursuant to the Long Term Transaction Incentive
Plan, all amounts due Employee shall be payable in one lump sum or, at
Employee's option, over such

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period of time not to exceed twelve (12) months. Employee shall have no duty to
seek other employment during this period of time and there shall be no offset
for any compensation paid to Employee from any other source; provided, however,
if Employee is paid a consulting fee or receives compensation from Kaiser or an
Affiliate of Kaiser for services actually rendered during a one (1) year period
from the date of termination, unless otherwise agreed in writing, such amount
shall be offset against the payments made or due Employee.

     13.  Possible Reduction in Certain Benefits.

          a.   Except as provided in Paragraph 13(b) below, Employee shall in no
circumstances receive "payments in the nature of compensation" from Kaiser which
would result in "excess parachute payments" (as that term is defined in Sections
280G and 4999 of the Internal Revenue Code of 1954, as amended, or any
equivalent or analogous term as shall in the future be defined in any law or
regulation governing the amount of severance compensation that may be paid
without penalty to an officer of a company upon a change in control of Kaiser).
In the event either Employee or Kaiser shall be advised in writing by his or its
counsel that Employee would receive excess parachute payments if all payments
under all contacts between Employee and Kaiser were made, such opinion shall be
confidentially disclosed to the other party. If it is mutually determined that
such payments would trigger the excess parachute payments provisions, Employee
shall receive only such compensation and benefits under his contracts with
Kaiser (not to exceed those permitted without constituting excess parachute
payments) which he, in his sole discretion, has designated in written notice to
Kaiser. Employee shall have a minimum of thirty (30) days in which to make such
written designation. In the event of a disagreement between the counsel of the
respective parties as to whether a payment would result in excess parachute
payments, such counsel shall jointly designate an independent tax counsel (whose
fees shall be paid by Kaiser) within 10 days who shall promptly make a
conclusive determination of the matter.

          b.   Notwithstanding anything else to the contrary, in the event
Employee is terminated pursuant to Paragraph 12 above, Employee shall have the
right, in his sole discretion, to elect to receive all or any part of the
compensation payable to him upon termination (or which would have been due under
Paragraph 12 but for a previous election under Paragraph 13(a)) without regard
to whether any such amounts may constitute "excess parachute payments." If
Employee fails to provide Kaiser a written designation within thirty (30) days,
he shall be presumed to have elected to receive all compensation and benefits
due him without regard to whether any such compensation or benefits shall
constitute "excess parachute payments."

          c.   Nothing in this Paragraph 13 shall be construed or deemed to be a
forfeiture of any compensation or benefits that Employee may elect not to
accelerate due to any concern about the receipt of "excess parachute payments."

     14.  Termination for Cause.  If Kaiser elects to terminate Employee's
employment for cause (as defined below), Employee's employment will terminate on
the date fixed for termination by Kaiser and thereafter Kaiser will not be
obligated to pay Employee any additional compensation, other than the
compensation due and owing up to the date of termination and as may be required
by law.  After such termination, Employee shall be entitled, for a period of one
hundred twenty (120) days, to exercise any stock options or other stock related
incentives that are vested as of the date of termination.

     15.  Definition of "Cause."  "Cause" for the purposes of this Agreement
shall mean any of the following:

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          a.   Willful breach by Employee of any provision of this Agreement,
provided, however, if the breach is not a material breach, Kaiser shall give
Employee written notice of such breach and Employee shall have thirty (30) days
in which to cure such breach. No written notice or cure period shall be required
in the event of a willful and material breach of this Agreement by Employee;

          b.   Gross negligence or dishonesty in the performance of Employee's
duties or responsibilities hereunder;

          c.   Engaging in conduct or activities or holding any position that
materially conflicts with the interest of, or materially interferes with
Employee's duties and responsibilities to Kaiser or its Affiliates; or

          d.   Engaging in conduct which is materially detrimental to the
business of Kaiser or its Affiliates.

     16.  Voluntary Termination.  Employee's employment by Kaiser may be
terminated at any time upon the parties' mutual written agreement or voluntarily
by either party upon prior written notice to the other.  Upon termination of
Employee by Kaiser for any reason (including a constructive termination) except
for death, permanent disability or for cause, Employee shall receive the
compensation and benefits set forth in Paragraph 12 of this Agreement.  In the
event of a mutual written agreement, Employee's severance benefits shall be as
set forth in such agreement.  In the event of Employee's voluntary termination
of employment, Kaiser shall not be obligated to pay Employee any additional
compensation, other than the compensation due and owing as through the date of
termination and as may be required by law, as well as any payments that become
due Employee under the terms of Kaiser's Long Term Transaction Incentive Plan
(which payments can continue to be made to Employee beyond the date of
Employee's termination in accordance with the terms of the Long Term Transaction
Incentive Plan).  After such termination, Employee shall be entitled for a
period of one hundred twenty (120) days to exercise any stock options or other
stock related incentives that are vested as of the date of termination.

     17.  Confidentiality.

          a.   Employee's Obligations. Employee agrees that (a) except as
provided in this Agreement Employee shall maintain the confidential nature of
any Proprietary Information received or acquired by him, and (b) Employee shall
use such Proprietary Information solely for the purpose of meeting his
obligations under this Agreement and not in connection with any other business
or activity. "Proprietary Information" means all oral, written or recorded
information about or related to Kaiser or any of its Affiliates or its or their
technology, assets, liabilities, or business, whether acquired before or after
the date hereof, and regardless of the manner in which it is acquired, together
with any documents or other materials prepared by Employee which contain or
reflect such information. After termination of employment upon demand of Kaiser,
Employee agrees to return or destroy any and all materials containing any
Proprietary Information.

          b.   Kaiser's Obligations. Kaiser agrees that it shall maintain and
provide information regarding Employee in accordance with generally accepted
industry and business practices.

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          c.   Limitations on Confidential Obligations and Use Restrictions. The
restrictions in Paragraph 17(a) above do not apply to information which Employee
can demonstrate (i) is then in the public domain by acts not attributable to
such disclosing party or (ii) is hereafter received on an unrestricted basis by
such Employee from a third party source who, to Employee's knowledge after due
inquiry, is not and was not bound by confidentiality obligations to Kaiser or
any Affiliate thereof. In addition, Employee and Kaiser are permitted to
disclose any Proprietary Information as necessary in the defense or prosecution
of any legal action.

          d.   Actions if Disclosure Required. If Employee is required by law to
make any disclosure otherwise prohibited hereunder, such party shall use its
best efforts to provide the other with prompt prior notice where possible so
that (a) the other party (with the reasonable cooperation of the party required
to make such disclosure) may seek an appropriate protection order or other
remedy and/or (b) the parties can seek in good faith to agree on the appropriate
scope and approach to disclosure. If a protective order or other remedy is not
obtained, the party required to make such disclosure may furnish only that
portion of information protected hereby which it is legally compelled to
disclose and shall use its reasonable efforts to obtain confidential treatment
for all information so disclosed.

          e.   Injunction. Each party agrees that remedies at law may be
inadequate to protect against breach of this Paragraph 17, and hereby agrees to
the granting of injunctive relief without proof of actual damage.

     18.  Indemnification. Kaiser agrees to indemnify employee in accordance
with the Indemnification Agreement between Employee and Kaiser dated January 15,
2000.

     19.  Arbitration of Disputes.  If Employee and Kaiser cannot resolve a
dispute (whether arising in contract or tort or any other legal theory, whether
based on federal, state or local statute or common law and regardless of the
identities of any other defendants) that in any way relates to or arises out of
this Agreement, the termination of Employee's employment relationship with
Kaiser or any Affiliate thereof, (without limiting the generality of any other
Paragraph herein), then such dispute shall be settled as follows:

          a.   Kaiser and Employee agree to jointly select a judicial officer
who is affiliated with the Judicial Arbitration and Mediation Service, or such
other equivalent organization as Kaiser and Employee may mutually select, to act
as the trier of fact and judicial officer in such dispute resolution;

          b.   If Kaiser and Employee are unable to agree upon a particular
judicial officer, then the decision shall be made by the chief executive officer
of the Judicial Arbitration and Mediation Service, after consulting with Kaiser
and Employee;

          c.   Kaiser and Employee shall have the same rights of discovery as if
the dispute were being resolved in the Superior Court of the State of
California. However, the judicial officer shall, on his own motion, or the
request of either Kaiser or Employee, have the authority to extend or reduce the
time periods therefore; and,

          d.   The judicial officer serving hereunder shall be designated as a
referee under the provisions of Title VIII, Chapter 6 of the California Code of
Civil Procedure (Sections 638 through 645. 1, inclusive). Payment for the
services of the judicial officer and the rights and

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procedure of appeal, and/or other review of the decision, shall be made as
provided in such sections.

     The judicial officer shall have the right to grant injunctive relief,
specific performance and other equitable remedies.

     20.  Miscellaneous.

          a.   Entire Agreement; Amendments. This Agreement and the exhibits
attached hereto state the entire understanding and agreement between the parties
with respect to its subject matter as of the date of this Agreement and may only
be amended by a written instrument duly executed by Employee and Kaiser.

          b.   Assignment. This Agreement and the rights and obligations of
Employee may not be sold, transferred, assigned, pledged or hypothecated by
Employee.

          c.   Non-Waiver. Failure to insist upon strict compliance with any
provision of this Agreement or the waiver of any specific event of non-
compliance shall not be deemed to be or operate as a waiver of such provision or
any other provision hereof or any other event of non-compliance.

          d.   Binding Effect. This Agreement shall be binding upon and inure to
the benefit of Kaiser, its successors and assigns and, Employee's heirs,
successors, and legal or personal representatives.

          e.   Headings. The headings throughout this Agreement are for
convenience only and shall in no way be deemed to define, limit, or add to the
meaning of any provision of this Agreement.

          f.   Context. Whenever required by the context, the singular shall
include the plural, the plural the singular, and one gender such other gender as
is appropriate.

          g.   Notices. All notices, request, demands, consents and other
communications hereunder shall be transmitted in writing and shall be deemed to
have been duly given when hand delivered or sent by certified United States
mail, postage prepaid, with return by certified requested, addressed to the
parties as follows:

               Kaiser Ventures Inc.
               3633 E. Inland Empire Blvd., Suite 850
               Ontario, CA  91764

               Anthony Silva
               7 Capri
               Foothill Ranch, CA  92610

          h.   Costs. In any action taken to enforce the provisions of this
Agreement, the prevailing party shall be reimbursed all reasonable costs
incurred in such legal action including reasonable attorney's fees in such
action.

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          i.   Severability. If any provision or clause of this Agreement, as
applied to any party or circumstances shall be adjudged by a court to be invalid
or unenforceable, said adjudication shall in no manner effect any other
provision of this Agreement, the application of such provision to any other
circumstances or the validity or enforceability of this Agreement.

          j.   Definition of Affiliate. The term "Affiliate" for purposes of
this Agreement shall mean any person or entity now or hereafter in control,
controlled by or in common control with Kaiser. It shall also include any direct
or indirect subsidiary of such Corporation and any company in which Kaiser has
more than a ten percent (10%) ownership interest.

          k.   Acknowledgment Regarding ISO's. Employee acknowledges that he is
responsible for the tax consequences of all severance compensation he may
receive and that certain actions may need to be taken by Employee within limited
periods of time to preserve the tax status of any incentive stock options.
Kaiser makes no representation or warranty that any past or future grant of a
stock option to Employee qualifies as an incentive stock option.

          l.   Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.

     IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement to be effective as of the day and year first written above not
withstanding the actual date of signature.

"Employee"                              "Kaiser"
Anthony Silva                           Kaiser Ventures Inc.

/s/ Anthony Silva                       By: /s/ Terry L. Cook
-----------------                          -------------------------
Anthony Silva                              Terry L. Cook,
                                           Executive Vice President -
                                           Administration

                                        By: /s/ Todd G. Cole
                                           -------------------------
                                           Todd G. Cole, Chairman,
                                           Human Relations Committee

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                                 Schedule "A"
                                 ============

                                 ANTHONY SILVA
          Vice President Corporate and Engineering and Environmental

     This position reports to the Executive Vice President and the Chief
Executive Officer of the Corporation.

Responsibilities

     The position has the primary responsibility for developing strategies and
options for addressing and resolving all of Kaiser's outstanding environmental
remediation liabilities and for managing cost-effective implementation of those
environmental remediation strategies and options approved by Kaiser's management
and the Board of Directors.

Employee's Particular Responsibilities Include:

     .    Assisting the Chief Executive Officer and others with developing
          environmental remediation strategy(ies) and managing the
          implementation of the approved strategy to comply with consent order
          and additional Department of Toxic Substances Control requirements.

     .    Managing the development of all long-term strategic environmental
          remediation planning and monitoring for Kaiser.

     .    Selecting, managing and supervising, as appropriate, all environmental
          and related other consultants and contractors.

     .    Providing Senior Management review on various redevelopment/planning
          projects and environmental/engineering projects.

     .    Ensuring correct environmental and engineering information is
          disseminated to Senior Management, Board of Directors and Regulatory
          Agency Representatives.

     .    Implementing operational systems (e.g. computer information systems
          and project management systems) to assist in the management of
          assigned projects and associated budgets.

     .    Providing professional expertise to in-house counsel and retained
          counsel for claims, litigation and judicial arbitration.

     .    Participating as an Integral Member of Corporate Strategic Planning
          Team.

     .    Developing and managing corporate engineering and environmental annual
          budgets.

     .    Develop and implementing audit and monitoring programs to insure
          Kaiser's compliance in complying with statutory and corporate
          requirements.

     .    Providing regular briefings/reports on key issues to Senior
          Management, Board and Directors and regulatory agency report
          representatives.

     .    Conduct in-house training as necessary to ensure all employees are
          aware of their responsibilities with regard to corporation
          environmental policies and practice.

                                       10<PAGE>

                                                                    EXHIBIT 10.6
                                                                    ============

                             AMENDED AND RESTATED
                             EMPLOYMENT AGREEMENT
                                      OF
                                PAUL E. SHAMPAY

     This AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is made and
entered into effective as of September 19, 2000 by and between PAUL E. SHAMPAY
("Employee") and KAISER VENTURES INC. ("Kaiser").

                                    RECITALS

     A.  Employee is currently employed by Kaiser as Vice President, Finance
pursuant to that certain Employment Agreement between Employee and Kaiser dated
as of January 6, 2000 (the "Employment Agreement").

     B.  The intent of this Agreement is to amend and to restate the Employment
Agreement and thus set forth the current agreement and understanding of Employee
and Kaiser with regard to Employee's continued employment by Kaiser.

     NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     1.  Employment, Positions and Duties. Kaiser hereby continues the
employment of Employee upon the terms and conditions set forth in this
Agreement. Employee's position with Kaiser shall be Vice President, Finance.
Employee shall have the responsibilities and duties normally incident to such
position, including, but not limited to, those duties and responsibilities set
forth in Schedule "A" attached hereto and incorporated herein by this reference
         ============
and such other duties and responsibilities as may be reasonably assigned to him
from time-to-time by Kaiser's Executive Vice President or Chief Executive
Officer. Employee agrees to devote his full business time and attention to the
discharge of his duties and responsibilities under this Agreement.

     2.  Term. Employee's employment under the terms of this Agreement shall
commence as of September 19, 2000, and shall continue until terminated as
provided herein; provided, however, upon Employee's termination, Employee shall
receive the severance compensation provided herein.

     3.  Base Salary.  Employee's initial annual base salary shall be Ninety One
Thousand Dollars ($91,000).

     Prior to the first meeting of the Board of Directors in any calendar year,
the Human Relations Committee of the Board will review Employee's salary and
report its recommendations for any revision to the full Board at such meeting.

     4.  Bonus Program.

         a. Annual Performance Bonus. In addition to his base salary, Employee
shall be entitled to participate in the bonus program of Kaiser applicable to
senior executives as it may be amended from time to time. The timing, size
and/or amount of any bonus awarded to Employee during the term of this Agreement
will be determined annually in accordance with the

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process set forth in Paragraph 3 above for the annual base salary review and
based upon the bonus program developed from time to time by the Compensation and
Benefits Committee and approved by the Board of Directors. The current annual
performance plan for executive officers of Kaiser was adopted by the Board of
Directors on January 6, 2000, and such plan (as it may be amended from time to
time for years after 2000) is incorporated herein by this reference.

          b.  Long Term Incentive Plan. Employee shall be eligible to receive
payments in accordance with the terms of the Long Term Transaction Incentive
Plan adopted by Kaiser effective September 19, 2000.

     5.   Stock Options and Other Stock Related Incentives.  Employee shall be
eligible for the grant of incentive stock options, non-qualified stock options
and other forms of stock related incentives from time-to-time in the discretion
of the Stock Option Committee of the Board of Directors.  The timing, size and
amount of any future stock options or other stock related incentives will be
determined generally in accordance with the process used to determine the award
of any bonus to Employee.  The grant and exercise of the stock options and other
stock related incentives shall generally be subject to and governed by the terms
of an approved stock plan or stock option plan or any similar or successor
option plan.  However, the Stock Option Committee may award stock options,
restricted stock or other stock related incentives outside an approved plan in
its discretion.

     Kaiser acknowledges and agrees that all stock options granted to Employee
prior to the date of this Agreement are fully vested in Employee.

     6.   Other Benefits. Employee will be entitled to participate in all
benefits provided by Kaiser to its employees and to senior executives in
accordance with and subject to Kaiser's polices and procedures as they may exist
from time-to-time, including, but not limited to, medical and dental insurance,
life insurance, disability insurance, 401(k) savings plan, any pension plan,
deferred compensation plan, education and seminar reimbursement, car allowance,
and reimbursement of reasonable expenses for company business. These benefits
shall include life insurance for the benefit of Employee with a face amount of
not less than Employee's annual base salary, except that Kaiser may self-insure
if insurance is not available on a commercially reasonable basis. Employee shall
be entitled to three (3) weeks of paid vacation per year until Employee has been
employed at Kaiser for five (5) years at which time Employee shall be entitled
to four (4) weeks of paid vacation per year.

     7.   Restricted Stock. Any restricted stock issued by Kaiser in lieu of
cash payments in connection with Employee's base salary or any bonus, shall be
subject to the terms and conditions of a stock restriction agreement which may
provide, among other things, for the forfeiture of such stock in phases if
Employee should voluntarily terminate his employment with Kaiser or upon
Employee's termination for "cause", as defined herein.

     8.   Death Benefits. In the event of Employee's death, Kaiser shall pay to
Employee's personal representative or his estate, Employee's salary and benefits
through the end of the month in which the death occurred plus a ratable portion
of Employee's anticipated bonus for the year through the date of Employee's
death. Employee's anticipated bonus shall be calculated by multiplying
Employee's average percentage bonus paid over the prior five years by Employee's
then annual base salary. If a bonus has been earned by Employee for the
preceding fiscal year but has not yet been paid prior to the death of Employee,
Employee's estate or personal representative shall be paid the full amount of
the earned but unpaid bonus. In addition, Kaiser shall pay, from time to

                                       2
<PAGE>

time, any payment that is due under the terms of the Long Term Transaction
Incentive Plan as provided in Paragraph 4(b) of this Agreement. The proceeds
from any such life insurance shall be for the sole benefit of Employee's
designated beneficiaries or if there are no designated beneficiaries, Employee's
estate. Upon an Employee's death, all restricted stock issued to Employee for
past services (e.g. bonus stock), shall immediately vest and all restricted
stock initially issued for anticipated future services (e.g. salary stock) will
vest ratably through the date of death. Employee's estate or personal
representative shall have at least one (1) year after the date of Employee's
death while in the employment of Kaiser in which to exercise all vested Stock
Options.

     9.  Disability Benefits. In the event of the disability of Employee for any
reason, Kaiser shall continue to pay to Employee his salary and benefits less
short-term disability payments until long-term disability payments are made to
Employee but in no event shall such salary and benefit payments continue for
longer than six (6) months from the date of disability. In addition, upon
permanent disability, the vesting of all retirement and deferral compensation
plans and all outstanding options, restricted stock or other stock related
incentives shall continue to occur for a period of two (2) years after the date
of disability in the same manner as if Employee were still employed by Kaiser
during that period.

     10. Deductions. Applicable federal and state income taxes, social security
contributions (FICA), Medicare contributions, medical insurance premiums and any
other appropriate or customary deductions shall be withheld from any
compensation paid to Employee by Kaiser.

     11. Constructive Termination.  Employee shall be deemed to have been
constructively discharged upon the occurrence of any of the following events:

         a. The assignment to Employee of duties materially and adversely
inconsistent with Employee's positions as of the effective date of this
Agreement. This includes a change in reporting responsibilities, authority
including title, or responsibilities; provided, however, a lateral transfer
within Kaiser or to an Affiliate shall not be deemed a constructive termination;

         b. Any requirement that Employee permanently relocate to an office more
than 50 miles from the then location to which he is assigned as of the effective
date of this Agreement; and

         c. Any failure to provide Employee with compensation and benefits in
the aggregate on terms that are materially less favorable than those enjoyed by
Employee under this Agreement immediately prior to a Material Change, or the
subsequent taking of any action that would materially reduce Employee's
compensation and benefits in effect at the time of the Material Change.

         then, at Employee's option, exercisable within ninety (90) days of the
date Employee knew, or should have known exercising reasonable care, of the
occurrence of any of the foregoing events and the expiration of any applicable
cure period, Employee shall have the right to terminate his employment by
written notice to Kaiser, and on the date of such termination Kaiser will pay
Employee the compensation and benefits described in Paragraph 12 below.

     12. Compensation Payable Upon Actual or Constructive Termination. In the
event Employee is terminated by Kaiser for any reason (including a constructive
termination)

                                       3
<PAGE>

except for death, permanent disability or for cause, as defined below, Kaiser
shall pay to Employee the following compensation and Employee shall receive the
following benefits as severance benefits:

          a.      if the termination is effective after March 31 of any year, an
amount equal to the pro rata portion of the annual performance bonus (that
Employee would have been eligible to earn for the year of termination calculated
by multiplying Employee's average percentage bonus paid over the prior five
years (or such lesser period of time during which Employee was eligible to
receive a bonus) by Employee's then annual base salary ;

          b.      an amount equal to the greater of Employee's then current
annual base salary or his base salary in effect on the date of this Agreement;

          c.      an amount equal to one year's average annual bonus (cash and
stock, but not including stock options or stock grants outside of the annual
bonus) calculated by multiplying Employee's average percentage bonus paid over
the prior five years or such lesser period of time during which Employee was
eligible to receive bonus by the greater of Employee's then current base salary
or his base salary in effect on the date of this Agreement;

          d.      any payments that become due Employee under the terms of
Kaiser's Long Term Transaction Incentive Plan (which payments can continue to be
made to Employee beyond the date of Employee's termination in accordance with
the terms of the Long Term Transaction Incentive Plan);

          e.      Kaiser shall continue to provide and pay its portion of all of
Employee's health, welfare, insurance and other benefits for a period of twelve
(12) months following the date of termination, including Kaiser's portion of any
retirement and deferred compensation plan such as Kaiser's 401(k) plan. After
such termination, Employee shall be entitled, for a period of three years to
exercise his stock options as to any then vested, including any options vesting
within one year of termination as provided in the next sentence, notwithstanding
any other applicable provision contained in any option agreement. In addition to
the foregoing related to stock options, with respect to any restricted stock or
other stock related incentives, Employee shall continue to vest in such
securities for a period of one-year following termination; and

          f.      Employee shall have the right to participate proportionately
in stock buyback or dividend distribution in proportion to shares owned together
with all other shareholders.

     For purposes of this Agreement, "average percentage bonus paid over the
prior five years" shall mean the average percentage bonus (cash and stock, but
not including either (i) stock options or stock grants outside of the annual
bonus or (ii) amounts paid under the Long Term Incentive Plan as described in
4(c) below)received by Employee for the five years preceding the year of
termination (or for such lesser period in which bonus payments were received)
compared to his base salary in each of those years.

     Except for payments made pursuant to the Long Term Transaction Incentive
Plan, all amounts due Employee shall be payable in one lump sum or, at
Employee's option, over such period of time not to exceed twelve (12) months.
Employee shall have no duty to seek other employment during this period of time
and there shall be no offset for any compensation paid to Employee from any
other source; provided, however, if Employee is paid a consulting fee or
receives compensation from Kaiser or an Affiliate of Kaiser for services
actually rendered during a

                                       4
<PAGE>

one (1) year period from the date of termination, unless otherwise agreed in
writing, such amount shall be offset against the payments made or due Employee.

     13.  Possible Reduction in Certain Benefits.

          a.      Except as provided in Paragraph 13(b) below, Employee shall in
no circumstances receive "payments in the nature of compensation" from Kaiser
which would result in "excess parachute payments" (as that term is defined in
Sections 280G and 4999 of the Internal Revenue Code of 1954, as amended, or any
equivalent or analogous term as shall in the future be defined in any law or
regulation governing the amount of severance compensation that may be paid
without penalty to an officer of a company upon a change in control of Kaiser).
In the event either Employee or Kaiser shall be advised in writing by his or its
counsel that Employee would receive excess parachute payments if all payments
under all contacts between Employee and Kaiser were made, such opinion shall be
confidentially disclosed to the other party. If it is mutually determined that
such payments would trigger the excess parachute payments provisions, Employee
shall receive only such compensation and benefits under his contracts with
Kaiser (not to exceed those permitted without constituting excess parachute
payments) which he, in his sole discretion, has designated in written notice to
Kaiser. Employee shall have a minimum of thirty (30) days in which to make such
written designation. In the event of a disagreement between the counsel of the
respective parties as to whether a payment would result in excess parachute
payments, such counsel shall jointly designate an independent tax counsel (whose
fees shall be paid by Kaiser) within 10 days who shall promptly make a
conclusive determination of the matter.

          b.      Notwithstanding anything else to the contrary, in the event
Employee is terminated pursuant to Paragraph 12 above, Employee shall have the
right, in his sole discretion, to elect to receive all or any part of the
compensation payable to him upon termination (or which would have been due under
Paragraph 12 but for a previous election under Paragraph 13(a)) without regard
to whether any such amounts may constitute "excess parachute payments." If
Employee fails to provide Kaiser a written designation within thirty (30) days,
he shall be presumed to have elected to receive all compensation and benefits
due him without regard to whether any such compensation or benefits shall
constitute "excess parachute payments."

          c.      Nothing in this Paragraph 13 shall be construed or deemed to
be a forfeiture of any compensation or benefits that Employee may elect not to
accelerate due to any concern about the receipt of "excess parachute payments."

     14.  Termination For Cause. If Kaiser elects to terminate Employee's
employment for cause (as defined below), Employee's employment will terminate on
the date fixed for termination by Kaiser and thereafter Kaiser will not be
obligated to pay Employee any additional compensation, other than the
compensation due and owing up to the date of termination and as may be required
by law. After such termination, Employee shall be entitled, for a period of one
hundred twenty (120) days, to exercise any stock options or other stock related
incentives that are vested as of the date of termination.

     15.  Definition OF "Cause."  "Cause" for the purposes of this Agreement
shall mean any of the following:

          a.  Willful breach by Employee of any provision of this Agreement,
provided, however, if the breach is not a material breach, Kaiser shall give
Employee written notice of such breach and Employee shall have thirty (30) days
in which to cure such breach. No written notice or

                                       5
<PAGE>

cure period shall be required in the event of a willful and material breach of
this Agreement by Employee;

       b. Gross negligence or dishonesty in the performance of Employee's duties
or responsibilities hereunder;

       c. Engaging in conduct or activities or holding any position that
materially conflicts with the interest of, or materially interferes with
Employee's duties and responsibilities to Kaiser or its Affiliates; or

       d. Engaging in conduct which is materially detrimental to the business of
Kaiser or its Affiliates.

  16.  Voluntary Termination. Employee's employment by Kaiser may be terminated
at any time upon the parties' mutual written agreement or voluntarily by either
party upon prior written notice to the other. Upon termination of Employee by
Kaiser for any reason (including a constructive termination) except for death,
permanent disability or for cause, Employee shall receive the compensation and
benefits set forth in Paragraph 12 of this Agreement. In the event of a mutual
written agreement, Employee's severance benefits shall be as set forth in such
agreement. In the event of Employee's voluntary termination of employment,
Kaiser shall not be obligated to pay Employee any additional compensation, other
than the compensation due and owing as through the date of termination and as
may be required by law, as well as any bonus amounts that become due Employee
under the terms of Kaiser's Long Term Transaction Incentive Plan (which payments
can continue to be made to Employee beyond the date of Employee's termination in
accordance with the terms of the Long Term Transaction Incentive Plan). After
such termination, Employee shall be entitled for a period of one hundred twenty
(120) days to exercise any stock options or other stock related incentives that
are vested as of the date of termination.

  17.  Confidentiality.

       a. Employee's Obligations. Employee agrees that (a) except as provided in
this Agreement Employee shall maintain the confidential nature of any
Proprietary Information received or acquired by him, and (b) Employee shall use
such Proprietary Information solely for the purpose of meeting his obligations
under this Agreement and not in connection with any other business or activity.
"Proprietary Information" means all oral, written or recorded information about
or related to Kaiser or any of its Affiliates or its or their technology,
assets, liabilities, or business, whether acquired before or after the date
hereof, and regardless of the manner in which it is acquired, together with any
documents or other materials prepared by Employee which contain or reflect such
information. After termination of employment upon demand of Kaiser, Employee
agrees to return or destroy any and all materials containing any Proprietary
Information.

       b. Kaiser's Obligations. Kaiser agrees that it shall maintain and provide
information regarding Employee in accordance with generally accepted industry
and business practices.

       c. Limitations on Confidential Obligations and use Restrictions. The
restrictions in Paragraph 17(a) above do not apply to information which Employee
can demonstrate (i) is then in the public domain by acts not attributable to
such disclosing party or (ii) is hereafter received on an unrestricted basis by
such Employee from a third party source who, to Employee's knowledge after due
inquiry, is not and was not bound by confidentiality obligations to Kaiser or

                                       6
<PAGE>

any Affiliate thereof. In addition, Employee and Kaiser are permitted to
disclose any Proprietary Information as necessary in the defense or prosecution
of any legal action.

     d.     Actions if Disclosure Required. If Employee is required by law to
make any disclosure otherwise prohibited hereunder, such party shall use its
best efforts to provide the other with prompt prior notice where possible so
that (a) the other party (with the reasonable cooperation of the party required
to make such disclosure) may seek an appropriate protection order or other
remedy and/or (b) the parties can seek in good faith to agree on the appropriate
scope and approach to disclosure. If a protective order or other remedy is not
obtained, the party required to make such disclosure may furnish only that
portion of information protected hereby which it is legally compelled to
disclose and shall use its reasonable efforts to obtain confidential treatment
for all information so disclosed.

     e.     Injunction. Each party agrees that remedies at law may be inadequate
to protect against breach of this Paragraph 17, and hereby agrees to the
granting of injunctive relief without proof of actual damage.

 18. Indemnification. Kaiser agrees to indemnify employee in accordance with the
Indemnification Agreement between Employee and Kaiser dated January 15, 2000.

 19. Arbitration of Disputes. If Employee and Kaiser cannot resolve a dispute
(whether arising in contract or tort or any other legal theory, whether based on
federal, state or local statute or common law and regardless of the identities
of any other defendants) that in any way relates to or arises out of this
Agreement, the termination of Employee's employment relationship with Kaiser or
any Affiliate thereof, (without limiting the generality of any other Paragraph
herein), then such dispute shall be settled as follows:

     a.     Kaiser and Employee agree to jointly select a judicial officer who
is affiliated with the Judicial Arbitration and Mediation Service, or such other
equivalent organization as Kaiser and Employee may mutually select, to act as
the trier of fact and judicial officer in such dispute resolution;

     b.     If Kaiser and Employee are unable to agree upon a particular
judicial officer, then the decision shall be made by the chief executive officer
of the Judicial Arbitration and Mediation Service, after consulting with Kaiser
and Employee;

     c.     Kaiser and Employee shall have the same rights of discovery as if
the dispute were being resolved in the Superior Court of the State of
California. However, the judicial officer shall, on his own motion, or the
request of either Kaiser or Employee, have the authority to extend or reduce the
time periods therefore; and,

     d.     The judicial officer serving hereunder shall be designated as a
referee under the provisions of Title VIII, Chapter 6 of the California Code of
Civil Procedure (Sections 638 through 645. 1, inclusive). Payment for the
services of the judicial officer and the rights and procedure of appeal, and/or
other review of the decision, shall be made as provided in such sections.

     The judicial officer shall have the right to grant injunctive relief,
specific performance and other equitable remedies.

                                       7
<PAGE>

     20.  Miscellaneous.

          a. Entire Agreement; Amendments. This Agreement and the exhibits
attached hereto state the entire understanding and agreement between the parties
with respect to its subject matter as of the date of this Agreement and may only
be amended by a written instrument duly executed by Employee and Kaiser.

          b. Assignment. This Agreement and the rights and obligations of
Employee may not be sold, transferred, assigned, pledged or hypothecated by
Employee.

          c. Non-waiver. Failure to insist upon strict compliance with any
provision of this Agreement or the waiver of any specific event of non-
compliance shall not be deemed to be or operate as a waiver of such provision or
any other provision hereof or any other event of non-compliance.

          d. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of Kaiser, its successors and assigns and, Employee's heirs,
successors, and legal or personal representatives.

          e. Headings. The headings throughout this Agreement are for
convenience only and shall in no way be deemed to define, limit, or add to the
meaning of any provision of this Agreement.

          f. Context. Whenever required by the context, the singular shall
include the plural, the plural the singular, and one gender such other gender as
is appropriate.

          g. Notices.  All notices, request, demands, consents and other
communications hereunder shall be transmitted in writing and shall be deemed to
have been duly given when hand delivered or sent by certified United States
mail, postage prepaid, with return by certified requested, addressed to the
parties as follows:

             Kaiser Ventures Inc.
             3633 E. Inland Empire Blvd., Suite 850
             Ontario, CA  91764
             Attn:  General Counsel

             Paul Shampay
             41764 Corte Lara
             Temecula, CA  92592

          h. Costs. In any action taken to enforce the provisions of this
Agreement, the prevailing party shall be reimbursed all reasonable costs
incurred in such legal action including reasonable attorney's fees in such
action.

          i. Severability. If any provision or clause of this Agreement, as
applied to any party or circumstances shall be adjudged by a court to be invalid
or unenforceable, said adjudication shall in no manner effect any other
provision of this Agreement, the application of such provision to any other
circumstances or the validity or enforceability of this Agreement.

                                       8
<PAGE>

          j. Definition of Affiliate. The term "Affiliate" for purposes of this
Agreement shall mean any person or entity now or hereafter in control,
controlled by or in common control with Kaiser. It shall also include any direct
or indirect subsidiary of such Corporation and any company in which Kaiser has
more than a ten percent (10%) ownership interest.

          k. Acknowledgment Regarding Iso's. Employee acknowledges that he is
responsible for the tax consequences of all severance compensation he may
receive and that certain actions may need to be taken by Employee within limited
periods of time to preserve the tax status of any incentive stock options.
Kaiser makes no representation or warranty that any past or future grant of a
stock option to Employee qualifies as an incentive stock option.

          l. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

     IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement to be effective as of the day and year first written above not
withstanding the actual date of signature.

"Employee"                                  "Kaiser"
Paul E. Shampay                             Kaiser Ventures Inc.

/s/ Paul E. Shampay                         By:  James F. Verhey
---------------------------                      -------------------------------
Paul E. Shampay                                  James F. Verhey,

                                                 Executive Vice President - CFO

                                            By:  /s/ Todd G. Cole
                                                 -------------------------------
                                                 Todd G. Cole, Chairman,
                                                 Human Relations Committee

                                       9
<PAGE>

                                 SCHEDULE "A"
                                 ============

                                PAUL E. SHAMPAY
                            VICE PRESIDENT, FINANCE

     This position will report to the Executive Vice President & CFO.

Responsibilities:

     This position has the responsibility to manage all accounting, tax,
insurance and treasury functions for Kaiser, its subsidiaries and it joint
ventures; to assist the CFO in representing Kaiser with all outside entities
coming under the purview of corporate finance; to assist CFO and General Counsel
in ensuring that all SEC reporting requirements are mat in a satisfactory and
timely manner; to assist the CFO in managing the investor relations function; to
manage Kaiser's annual budget and capital plan processes; to manage Kaiser's
internal financial reporting; to manage Kaiser's annual audits by the Outside
Independent Accountants, to manage Kaiser's insurance program; to manage all the
human resource and employee benefits functions; and to manage Kaiser's computer,
communication and office equipment systems and software. These duties include
the following:

     .  Manage all aspects of the accounting and treasury functions of Kaiser,
        its subsidiaries and joint ventures, employing Generally Accepted
        Accounting Procedures.
     .  Manage Kaiser's annual budget and capital plan processes.
     .  Manage the annual audit and all audit procedures with outside auditors.
     .  Assist CFO and General Counsel regarding all SEC reporting and
        disclosure issues.
     .  Assist CFO in managing and oversee all financial aspects of SEC
        compliance.
     .  Assist CFO in managing Kaiser's financial analysis and modeling
        function.
     .  Assist CFO in managing the investor relations program, and
        shareholder/investor communications.
     .  Assist CFO in managing all tax planning and reporting.
     .  Manage all Company debt/lender compliance and reporting requirements.
     .  Manage all insurance programs.
     .  Manage and oversee all human resource functions to include employee
        benefits.
     .  Manage and oversee Kaiser's computer, communication and office equipment
        systems and software.

                                       10

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