How do I combine gems?

I'm starting to acquire quite a few gems, and I know there was a mechanic in the original where a few of one level could be combined to create one of the next level, like in Diablo.

Is there any such mechanic in Torchlight 2? How does it work? Where can I do it?

You need to find a transmuter in a dungeon first. You will find him while playing Act II and he will be standing around in the towncenter after that.

You can combine 3 gems to get a random new one. There is no upleveling of the gems anymore like in TL1, as far as I can see. I am far into Act II, close to Act III.

You can also combine any Item with 2 random gems of same level or higher to create a new socket in that item, additional to enchanting.

It appears this sentence, time to time, during map loading.

"Don't save your Ember for later! Use them in any piece of equipment with an open socket. You will find better varieties soon, and the ancient art of combining gems to make better ones has been lost in this era."

So I suppose that the original mechanic present in Torchlight I has been dropped.