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I was reading on it and the dev said that the reason you would want to repair over create a new one is its half the cost of materials to repair. So i guess if your low on materials then repairing would be better, and vice versa for if you have a lot of materials.
I was actually playing on xbox one. Though i own this on steam as well. But all the videos showed the PC, and i guess the xbox one is a little different. You have to get info on the tool when you have forged iron in your inventory, and then you can get the option to repair via directional arrows.
But thanks, i wasnt sure the process, so you helped me figure it out