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The main aim of this paper is the analysis of the effects of various processing conditions on the magnetic, mechanical, and energetic properties of mixture systems consisting of insulated iron powder compound and aluminum alloy. Specimens with a different green density (obtained with compacting pressures of 400, 600, and 800 MPa) were treated in different atmospheres (in air and nitrogen), all implying a step at the maximum temperature of 500°C for 30 min. The microstructure analyses revealed that heat treatment of aluminum alloys has proven to be more effective when carried out in full nitrogen atmosphere, both in terms of bonding evolution between adjacent particles and magnetic properties. Experimental results in terms of magnetic properties, mainly iron loss, confirmed the potentialities of powder metallurgy in electromagnetic applications.