KFx ANNOUNCES NEW DIRECTION FOR K-FUEL FACILITY

KFx Inc. has announced a new direction for the K-Fuel facility near Gillette, Wyoming, in connection with the continuing commercialization of its patented and commercially demonstrated K-Fuel clean coal technology.

A subsidiary of Black Hills Corporation, a major regional utility, has signed an agreement to purchase the K-Fuel plant and certain related assets. The plant was owned by a partnership between Thermo Ecotek Corporation as the 95 percent operating partner and KFx. As a part of the transaction Black Hills will receive 2 million shares of KFx common stock now held by Thermo Ecotek in exchange for its agreement to assume a reclamation bonding obligation related to the plant and its assets. Black Hills will also receive a 5-year warrant from KFx to purchase 1.3 million shares of KFx common stock at $3.65 per share.

Black Hills and KFx are proceeding to finalize plans and secure the necessary capital from third-party investors to rectify certain design flaws in the balance-of-plant systems and make other improvements to the plant in an effort to resume production and reach an expected operating level of 400,000 tons per year. Modifications to the Gillette plant will include the addition of an incinerator to eliminate certain process waste streams and modifications to replace natural gas with waste coal as the facility’s energy source. KFx and Black Hills currently estimate the cost of these modifications at $10 million to $12 million. If efforts to finalize plant modification plans and secure related capital are not successful by August 2000, Black Hills has the option to salvage the equipment and reclaim the site.

During late 1998 and early 1999, the K-Fuel plant produced approximately 50,000 tons of K-Fuel prior to Thermo Ecotek’s strategic decision in mid-1999 to exit the clean fuels business and offer the facility for sale. The Gillette plant demonstrated the K-Fuel technology on a commercial scale in early 1999 through the successful commercial burn of a unit train (approximately 12,000 tons) of K-Fuel at the Clifty Creek power station in Southern Indiana. No spontaneous combustion was experienced during shipment or handling, reductions in NOx emissions while maintaining capacity and reducing internal power consumption were experienced, and improvements in boiler efficiency were observed. Based on these results and other analysis, KFx’s partner in K-Fuel, LLC, Kennecott Energy Corporation, has advised KFx that it is moving ahead to optimize a 3-million ton per year plant design. A provision of the agreement with Black Hills provides it with the right to share equally in KFx’s rights to participate in the equity of K-Fuel plants, to the extent of the first three plants.

KFx has also negotiated with Black Hills a revenue-based service fee and retains its 5 percent royalty on sales from the plant, in return for its assistance in assembling this transaction. Additionally, KFx will retain its buildings and K-Fuel demonstration plant and receive ownership to all the lab equipment previously owned by the partnership.