Rare earth magnets with excellent magnetic properties are indispensable in the electric device, wind turbine, and e-mobility industries. The demand for the development of eco-friendly recycling techniques has increased to realize sustainable green technology, and the supply of rare earth resources, which are critical for the production of permanent magnets, are limited. Liquid metal extraction (LME), which is a type of pyrometallurgical recycling, is known to selectively extract the metal forms of rare earth elements. Although several studies have been carried out on the formation of intermetallic compounds and oxides, the effect of oxide formation on the extraction efficiency in the LME process remains unknown. In this study, microstructural and phase analyses are conducted to confirm the oxidation behavior of magnets pulverized by a jaw crusher. The LME process is performed with pulverized scrap, and extraction percentages are calculated to confirm the effect of the oxide phases on the extraction of Dy during the reaction. During the LME p rocess, Nd i s completely e xtracted a fter 6 h, w hile D y remains as D y2Fe17 and Dy-oxide. Because the decomposition rate of Dy2Fe17 is faster than the reduction rate of Dy-oxide, the importance of controlling Dy-oxide on Dy extraction is confirmed.