Hydrogen reduction of bauxite residue (BR), calcite and quicklime pellets were carried out under isothermal conditions for further iron separation by magnetic separation, and alumina recovery from non-magnetics components. Before hydrogen reduction, self-hardened pellets were pelletized with varying limestone and quicklime amounts by keeping Al2O3 and CaO ratio constant in materials mixtures. The self-hardening of the pellets took place through the cementing effect of rapidly formed Ca(OH)2 in green pellets via exposure to atmospheric CO2. Dried pellets were reduced in a thermogravimetry furnace for a hydrogen reduction kinetic study. All iron oxide in the reduced pellet was converted to metallic iron, and a major fraction of alumina to mayenite. The reduced pellets were pulverized for further processing for physical, chemical, phase, and microstructural properties. Milled pellet products were studied using different advanced characterization methods. Alumina in mayenite was recovered by using alkali leaching with a recovery above 75%. The residue contained metallic iron and it was treated for iron recovery by a Davis Tube test at different magnetic intensities (800–3200 G). The results showed that the Fe could be upgraded from 22 to 33% under the lowest applied magnetic field of 800 G. Increasing the magnetic field to 1000 G led to an enhancement of iron recovery reaching 72% with the Fe grade of 26%. Dissemination of ultrafine-iron particles (5–6 μm) throughout the matrix of material and complex association of the iron-bearing phases were identified as the principal challenges of the magnetic separation processes. Further electrochemical and chemical processes followed by the physical separations were suggested as a potential solution for the present study.