Magnetite is a block of natural raw material found in the Fossil layer not far below the surface, in caves or mineshafts that you dig yourself, together with Limestone, Bedrock, Fossils and Stone.
So if you see these kinds of rocks, then Magnetite might be nearby. Magnetite is rather rare, but if you find one block, then dig around it and you'll usually find more Magnetite blocks connected to each other.
You will need at least a Stone Mining Cell or better to mine/pull Magnetite blocks. Stone Mining Cells cannot only be crafted but also alternatively obtained from randomly spawning Obsidian Treasure Chests in darkness on blocks of the Stalactite layer.
Additional to that, Magnetite can also be occasionally received from Warmworms, Night Rocksters and from Rockzilla - either as a loot if you kill or dismiss them, or as their pet-harvest from time to time.
Magnetite patches might also more rarely be found a bit deeper down in the Stalactite layer amongst Siltstone or Stalactite.
Obtaining Magnetite is one of the requirements to unlock the crafting recipes of Obsidian Mining Cells, Teleporters, and many electrical devices starting with the Wiring Tool itself, followed by the Switch, the LED, the Pressure Plate, Sensor, Delay Gate, Flip-Flop Gate, Mob Spawner, Loot Spawner, Inverter Gate, Logic Gate, Number Comparison Gate, Number Pad and Block Phaser.
Magnetite is an ingredient needed to craft Fans (ventilators), Number Pads, Block Phasers, Logic Gates, Number Comparison Gates, Delay Gates, Flip-Flop Gates, Sensors and more.
