They are indeed shredded with components in place and then a series of nasty processes with even nastier chemicals and acids is used to extract the good stuff.

Most of the PCBs that we receive in are panelised, that means that there are multiple PCBs per panel and we just break them out at the end, bad boards are marked (scored) in the panels by the PCB manufacturer so we don't Mount them.

Obviously PCBs which aren't panelised but fail bare board test never make it to us, but you're unlikely to be able to get this "scrap" from a PCB manufacturer as its not their ip and we would certainly be pissed if a pcb manufacturer was giving away our boards to third parties - faulty or not.

Adrian