Yes. Altering the mental state is possible because the mind works off of electrical signals (magnetism can disrupt electrical signals). This was shown in a filler by this guy who ate a magnet (or something like that, I really didn't care to actually watch it).
And also, the 3rd Kazekage didn't simply materialize the Iron Sand out of chakra. We've only seen him using it as a puppet, and Sasori had stored a large amount of Iron Sand in the puppet, which the puppet then manipulated. But we won't be worrying about that.
For the most part you were correct. Though a magnetic field is generally just a positive charge interacting with a negative charge (or one of those charges interacting with another object of the same charge).
So, on the base Magnetism Release is just refined Lightning Release, meaning that instead of generating Lightning you're creating an Electromagnetic field to manipulate the metal objects of this style. Magnetism also doesn't have any strengths or weaknesses, mainly because it's not an element which is used "directly" on people. However, lightning applied to the ninja tools you use in conjunction with Magnetism Release can disrupt the magnetic field, thus rendering the technique useless (at equal or greater rank).
If you ever have any questions about anything in regards to Magnetism Release, please ask them. However, I feel that the best way to learn this style is to look at the techniques and how they work. So let's begin:
(Jishaku Ninpou: Denji Genmu) - Magnetic Ninja Art: Electric Phantasms
Rank: B
Type: Supplementary
Range: Short-Mid
Chakra cost: 20
Damage Points: N/A(all metal thrown at opponent hits them and causes +2 damage for each one that lands)
Description: Turns your opponent into a living magnet.
Okay, so this first technique is quite controversial. On the surface, it would seem that you are able to simply send out your chakra to magnetize your opponent, but that would render other techniques of similar nature useless, and it would considerably overpower Magnetism Release. Further research shows that it's based out of some special Iron Sand, but different from the 3rd Kazekage's variant. The way this technique actually works, as I see it, is that you have some Iron Sand which you charge all with the same charge (either positive or negative). This causes the sand to disperse in a large cloud of fine sand - it'll sparkle a bit, but you can easily see through it as if it weren't there. The sand can then magnetize a target of your choice on contact.
Of course, this is just how I see it - the name is taken from a different move (which is also in our RP), and this move itself doesn't appear to be cannon. Seeing as it doesn't make sense to magnetize something without contact (many customs have been declined because Magnetism needs a medium), my thoughts on this technique do make sense.
So now that that's established, why don't you perform it? Utilize some random iron dust to create a large cloud which will magnetize people that it hits. Obviously, this technique has a wider range than the shuriken-variant of this technique, but I want you to think of some drawbacks to this, or how an opponent might counter this technique as you perform it.