Metals such as CO, Ni, Cu, and Fe are recovered from magnet alloy grinding sludge by: treating with an organic solvent to remove most of the sulfur and oil contaminants; drying, grinding, sizing, and magnetic separation; oxidation roasting to remove the residual S and C; and reduction with hydrogen. Thus, a grinding sludge containing CO 10.5, Ni 4.8, Cu 1.4, Fe 15.3, Ti 1, Al 2.6, S 12.7, C 5.9, Al2O3, and H2O 20 pct was dried at 105 deg C for 8 h to remove 90 pct of the water. Dried sludge was crushed to -20 mesh, washed with C2Cl4 at 112 deg C for 1 h, filtered, dried, dispersed in methyl alcohol, and magnetically separated. The magnetic fraction was roasted in air at 550 deg C for 1.5 h, and reduced with H2 at 1,200 deg C for 2 h to give a product containing CO 20.3, Ni 10, cu 2.5, Fe 30.4, Ti 2.3, Al 1, Al2O3 30, s 0.01, and C 0.05 pct. The AlNiCO 5 mixtures with 20 pct of the treated sludge were melted together, and >90 pct of the CO, Ni, and Fe in the sludge was recovered in the alloy ingot. The Al2O3 reported to the slag.