* Co to pay $89 mln for 90 pct stake
* Deal to double co's rare-earth oxide production capacity
* Shares jump 5 percent in pre-market trade (Adds details on AS Silmet's ops, background and share movement)
April 4 (Reuters) - Molycorp , the largest U.S. producer of rare-earth metals, bought a controlling stake in Estonia-based AS Silmet for about $89 million, in a move that will mark its foray into Europe and double its rare-earth oxide production capacity.
Western rare earth suppliers have been scrambling to boost production to plug a supply gap created last year when No. 1 producer China sharply cut its exports of the metals, used in products ranging from laptop computers to hybrid-electric cars.
After the deal, AS Silmet will source rare-earth feed from Molycorp's facility in California, becoming the first rare earth oxide and metal producer in Europe not dependent on China for raw materials.
AS Silmet is one of the two rare earth processing facilities in Europe, producing up to 3,000 tonnes rare earth products and 700 tonnes of rare metal products annually.
The buy also expands Molycorp's manufacturing capabilities into rare metals niobium and tantalum -- used widely in electronics, materials manufacture and power generation systems.
"This acquisition provides Molycorp with a European base of operations as well as a larger global customer base, greater rare earth production capacity, and an expanded product line," Molycorp's CEO Mark Smith said in a statement.
The acquisition doubles Greenwood, Colorado-based Molycorp's current rare earth production capacity from about 3,000 tonnes per year of rare earth oxide equivalent to 6,000 tonnes.
The company is redeveloping the California rare earth mine, closed in the mid-1990s when prices of the minerals were very low, and aims to bring it back on line this year.
Molycorp acquired 90.023 percent of AS Silmet, while AS Silmet Grupp will retain 9.977 percent ownership. It acquired the stakes from AS Silmet Grupp and Treibacher Industrie AG.
Molycorp's shares, which went public in July 2010, rose 5 percent in pre-market trade on Monday. They closed at $59.25 on Friday on the New York Stock Exchange. (Reporting by A. Ananthalakshmi and Swetha Gopinath; Editing by Don Sebastian)