Magnus, the Blacksmith, is the next villager that the hero will rescue as he continues his journey, and once Magnus has returned to Alderstone, he opens his Forge. The Forge will allow you to take unneeded items and craft them into a random item of a better quality.
The first Forge that is available is the Fine Forge, unlocked as soon as Magnus is rescued. The Fine Forge will allow you to hand over three Common quality items to Magnus and receive a Fine quality item in return.
The Superior Forge becomes available automatically once Heroic Mode has been unlocked. It allows for four Fine quality items to be given to Magnus as material, and to receive a Superior quality item in return.
Unlocking Champion Mode will also unlock the Epic Forge, and the ability to have Epic quality items forged by Magnus. Epic quality items require five Superior quality items as material.
Finally, once Champion Mode has been completed, the Legendary Forge is unlocked. Hand over six Epic quality items and Magnus will forge a Legendary quality Item for the hero.
All Forge types can be unlocked ahead of time with Gems, and you may also pay an amount of Gems to forge an item in a situation where they lack the required number of lower quality items to use as material.
Any Forge job may also end with an item of a higher quality being crafted, or items with particular stats guaranteed. Magnus will announce these special Forge events when the player is in the Town Hub.