The Bayan Obo mine is a vast deposit containing multiple types of metals. This research proposed a method called suspension magnetization roasting–magnetic separation. The results indicated that iron concentrates with an iron grade of 65.10% and a recovery rate of 88.74% could be achieved by subjecting the mixture to a temperature of 425 °C for 30 min, a CO concentration of 20%, and a grinding fineness of −0.038 mm with a 95% yield. The rare earth element with a grade of 8.58% and a recovery rate of 92.29% can be extracted from the tailings following magnetic separation. This procedure entailed the transformation of hematite into magnetite, leading to a significant enhancement in the saturation magnetization intensity of the material that underwent treatment. This enhancement facilitated subsequent iron recovery. The roasted particles underwent a transformation, resulting in a roughened surface. Several fissures developed between rare earth elements and other minerals, favoring the process of grinding and separation.