Why Pilbara, MinRes, Liontown and IGO just got a major tailwind

It appears lithium stocks have bottomed after a two-year bear market, with bellwether Pilbara Minerals up more than 200% from its June low of $1.15.

Beyond the recent share price strength, two catalysts this week may have solidified the market low.

China lithium royalty reform

China's Ministry of Natural Resources has introduced a significant reform to lithium royalties, applying the "higher-value principle" to CATL's Jiangxi lepidolite mine. The new framework increases royalties from the previous 2-3% benchmark to 7% of sales revenue, based on actual market prices. In addition, environmental fees and compliance bonds have increased, lifting the overall cost structure for domestic lepidolite production.

The reform is part of Beijing's broader policy shift toward regulatory compliance, quality control, and anti-involution, signalling a move away from aggressive volume growth.

The financial impact is substantial for marginal producers, according to RBC Capital analyst Kaan Peker. The effective cost uplift of 1,000-1,500 yuan a tonne (around US$20-30 a tonne SC6) reduces cash margins for Jiangxi lepidolite operations, which typically operate with pre-royalty margins of 1,000-3,000 yuan a tonne.

By increasing the domestic cost floor, the policy favours larger, integrated lithium producers with diversified operations and higher efficiency, while smaller operators face intensified financial pressure.

Spodumene producers to benefit

This move should support margins and demand for established spodumene producers like Pilbara Minerals, MinRes and IGO, according to Peker, who pointed to four key drivers:

Structural cost inflation: Domestic Chinese producers face higher royalties and compliance costs, tightening marginal supply and pushing the cost curve upward. This higher Chinese cost base strengthens the global lithium price floor, particularly as some high-cost restarts are deferred.

Supply discipline: The increased financial pressure on smaller lepidolite operators in Jiangxi, Hunan, and Sichuan reinforces Beijing's shift from volume growth toward regulatory compliance and quality control. In Peker's view, this represents the practical enforcement of anti-involution policy for the lithium sector.

Converter procurement: Converters reliant on low-grade lepidolite concentrate may prefer to secure spodumene supply to offset compliance risk, which could provide a modest boost to seaborne spodumene demand.

Sentiment effect: The royalty reform formalises a structural Chinese cost floor, improving price confidence for spodumene producers.

MinRes sells 30% of lithium business to POSCO

MinRes has agreed to sell 30% of its lithium business on Wednesday, as part of a new joint venture with South Korea's POSCO. The key terms of the transaction include:

• POSCO will acquire 30% of MinRes’ operational lithium business (equivalent to an indirect 15% stake in each of Wodgina and Mt Marion) for US$765m (~A$1.2bn) cash
• For context, MinRes' lithium operations comprise 50% ownership of Wodgina and Mount Marion
• The deal values MinRes’ existing 50% stakes in the two mines at ~$3.9bn
• MinRes will retain a 70% interest in the new incorporated joint venture, maintaining operational control and a strong long-term position
• POSCO will receive spodumene concentrate in-line with its ownership, aligning offtake rights with its investment.
• Completion is expected in 1H26, pending regulatory and merger clearances including FIRB approval.

Why is this a big deal?

The POSCO transaction crystallises US$765 million (around A$1.2b) for 30% of MinRes' operational lithium arm, implying a A$3.9 billion valuation for its combined 50% interests in Wodgina and Mt Marion. That compares to consensus valuations around A$2.7 billion for MinRes' 50% share, suggesting the deal is being struck around 45% above consensus NAV, according to Peker.

In other words, POSCO is paying a massive premium at a time when the lithium sector still feels relatively uncertain as prices recover from recent lows. It's a rather encouraging signal that has sent MinRes shares up as much as 10.8% ($52.00) on Wednesday. The news also bolstered peers like Pilbara Minerals and Liontown, up 4.4% and 2.3% respectively.

Peker also estimates that the transaction will reduce net debt from $5.4 billion to approximately $3.7 billion, well below RBC estimates of a closing net debt position of $4.9 billion by FY26 end.

The bottom line

Combined, these two developments provide tangible support for the lithium sector. China's royalty reform lifts the global cost floor while POSCO's premium valuation validates the sector's recovery trajectory.