Saudi Arabian Mining Company (Maaden) has started to approach banks to fund a $7bn phosphate mining project in the north of the kingdom.

Banking industry sources say a wide group of local, regional and international lenders have been approached to seek funding commitments to the project.

Debt on the scheme will be about $5bn, split between a $1.3bn loan from the Public Investment Fund (PIF), a shareholder in Maaden, and $640m from the Saudi Industrial Development Fund (SIDF). The final $3bn will come from a $1.3bn commercial bank tranche, and $1.7bn split between direct loans and bank funded loans covered by the Export-Import Bank of Korea (Kexim).

Banks are due to respond with commitments in early November and Maaden aims to close the deal in the first quarter of 2013.

One banker with knowledge of the deal says pricing could be higher than on typical Saudi project finance transactions because the average life of the deal is quite long. The loans will have a tenor of 17 years and there is a five-year grace period before repayments start. New banking regulations known as Basel 3 make it more costly for banks to lend long term as they must put more capital aside. The impact of that means that banks are expected to charge more in interest costs for longer term loans, although pricing will depend on appetite from lenders so will not become clear until toward the end of 2013.

Funds will be used to develop the Waad al-Shamal phosphates city, which is being built at Umm Waal, on the northern border with Jordan. Maaden will own 60 per cent of the project along with the US’ Moasic, which will hold 25 per cent, and Saudi Basic Industries Corporation (Sabic), which will hold the remainder.

The UK’s HSBC is financial adviser on the project.