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Livingmetal is created using an altar of souls to enhance iron bars.
Items created using livingmetal will repair themselves, even while in your inventory, via the act of harvesting souls with either soulkeeper or soul vessel.
Note that the harvested souls are not consumed by this regeneration; only the act of harvesting is needed for the livingmetal gear to repair itself. You can also put the item in a anvil with one livingmetal ingot and reapir it like that as well.