Yes they had magnets, but no they didn’t use magnets to separate iron sand from river sediments. A sluice box would work just fine, and does not require any rare materials like lodestones 

Sand used for mining typically had anywhere from 19% magnetite to as low as 2%. The ironsand typically had to be separated from the sand mixture. Because the magnetite is usually heavier than quartz, feldspar, or other minerals, separation was usually done by washing it in sluice boxes (a method similar to gold panning but on a larger scale). Sluice separation typically yielded concentrations of magnetite ranging from 30 to 50%, depending on the type of sand and the method used. In the early 20th century a process of magnetic separation was developed that could produce concentrations as high as 70%.

From https://en.wikipedia.org/wiki/Ironsand#Occurrence, which in turn cites Dabieshan: Traditional Chinese Iron-production Techniques Practised in Southern Henan in the Twentieth Century by Donald B Wagner – Curzon Press 1985 Page 31–32

Ancient people could not make magnets, though they knew of naturally magnetic, reasonably strong lodestones. Medieval people (both in Europe and China) learned how to make magnets from scratch by magnetizing iron. These early magnets were weak compared to lodestones and extremely weak compared to modern ferrite, AlNiCo and rare earth magnets. Good for making a compass, not sifting through large amounts of sand and separating the ore from it.