A fundamental study was conducted with the purpose of establishing an environmentally sound recovery process for recycling of valuable metals, by combining scraps containing such metals. As an example, direct extraction and recovery of neodymium (Nd) in magnet scraps was investigated by utilizing liquid metal as an extraction medium. It was found that liquid magnesium (Mg) is a suitable extraction medium and can extract Nd from iron alloys with high efficiency at around 1100 K. The newly developed extraction apparatus for Nd is a mechanically simple and static device without moving parts, where the Mg extraction medium circulates due to differences in the temperature inside the reaction vessel. This developed device can simultaneously accomplish continuous extraction of metal Nd from scraps, re-extraction of Mg from Mg-Nd alloy and the eventual recovery of pure Mg. As a result, metal Nd with 98% purity was directly recovered from magnet scraps under certain conditions. It was also shown that the extraction agent Mg could be reused. The results of this investigation show the possibility of establishing a new process for the direct extraction of Nd in pure metal form without oxidization.