Alchemy is the process by which items can be duplicated and combined into a hybrid item with aspects of both items.
To begin alchemizing you will need to place four machines, which can be found below. This can be done through the build menu, where the machines can be found in the Phernalia Registry tab. The machines can be placed at no cost, but grist will be required to actually create an item at the end of the process.
The Cruxtruder provides the player with an endless supply of Cruxite Dowels. However, using the Cruxtruder for the first time triggers a countdown to a collision with a meteor. You'll have to be quick if you wish to survive. Once you have passed that phase, unlimited Cruxite Dowels can be removed from the Cruxtruder at no risk or cost.
The Punch Designix lets you create punched cards, which used in the fabrication of Cruxite Totems. It also lets you punch one card multiple times. In case you want to copy an expensive item, it is advised to punch said item onto the card of a cheap item. That way you don't spend as much grist through the destruction by punching of a card.
The Totem Lathe lets you carve a Cruxite Dowel into a Cruxite Totem using one or two cards. When a new Cruxite Totem is carved, clicking on it will reveal a silhouette of the item that Totem will produce when used with the Alchemiter. This is helpful in knowing whether or not your card combination has produced the result you wanted. A Carved Cruxite Totem that has been removed from the machine cannot be placed back in the Totem Lathe, only uncarved Dowels can be placed in the machine.
The Alchemiter lets you Alchemize items from Cruxite Totems produced by the Totem Lathe. When a Totem is placed on the Alchemiter, you will be shown the cost in Grist that is needed to create the item. Creating an item does not consume the Totem and it can be used again to craft the same item.
Punching a card
The first step in making a new weapon or item is to punch a card using the Punch Designix.
If you want to create a copy of a certain item, you only need to punch the card of the wanted item or punch the wanted item on another unpunched card. The card on which the item was punched doesn't matter, only what has been punched in it does.
If you want to combine 2 items, you can punch 2 cards with a different item and use it in the next step or punch one item over another punched card.
Creating a totem
Now that you have 2 punched cards, you just need to take a Cruxite Dowel from the Cruxtruder and put it and at least one punched card in the Totem Lathe. If you want to combine items as mentioned in the previous step, put both cards into the machine. This will give you a Totem of either the item you wanted to copy in case you only used 1 punched card or a hybrid item with properties from both items.
Creating the item
Now that you have the Totem, you can use it on the Alchemiter and create as many copies of the item the Totem holds, provided you have enough grist.
For combined items, it is possible to get an item of the type of one of the ingredients or of the other type. It seems like the stronger item is usually the outcome. In other words, if you wanted to create a stronger shirt using your Black Hoodie(1) and a Royal Deringer(5), punching both cards and combining them normally would only yield a slightly stronger Deringer. If you want to get a shirt out of this, you'd have to use the Punch Designix to punch the Black Hoodie over the card with the Royal Deringer punched on it. That way, you get a stronger version of the Black Hoodie instead. In other words:
Punched Royal Deringer && Punched Black Hoodie = Slightly improved Deringer
Punched (Royal Deringer || Black Hoodie) = Improved Black Hoodie
Another way to assure you get a hoodie instead of a Deringer:
Punched Black Hoodie && Punched (Royal Deringer || Black Hoodie) = Improved Black Hoodie