Errr... no they're not fairy dust, but iron dust, and as MrCheerful stated they are not magnetic.
The particles are a "magnetic material" which get magnetised by passing a current through the activating coil. This then causes the particles to 'line up' and two parts of the clutch lock up, hence how it works. A common problem with these is that the particles DO get magnetised with time and this causes the clutch to lock up when no current is applied.
Don't know whether this is the cause of your problem or not, but whatever, the statement you've been given that thay have "lost their magnetism" is utter rubbish.
More likely is they have GAINED magnetism and now the clutch won't free off completely, or at all. So arguably replacing them could fix the problem, but not for the stated reason.
I would not have thought repairing a magnetic powder clutch was really advisable, as muck getting in also causes the same problem. Don't know how much they charge, but I'd have thought better to get a new one.
If mechanic who's offering to replace the particles thinks he can do it and guarantee the work (doesn't work or last and you get your money back) then I suppose it's worth a shot.
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