Recently I cut some small SmCo and NdBFe magnets with a water cooled thin diamond blade.
The SmCo chipped pretty bad. The NdBFe didn't chip at all but it's pretty tough stuff.
No rusting on either one.
Make sure the magnets are held down REALLY well.
For the NdBFe the blade had ~36um (325 mesh) diamonds and the SFPM was ~12,000. Cut speed was real slow ~0.040"/sec.