The Dwarven Blacksmith is not available when you start the game. After reaching 10th level with your hero, you can talk to the Map Maker in Mayhew to reveal the Dwarven Blacksmith building in Easy Street in Valmorgen. Inside this building you can find a grumpy dwarf - the Dwarven Blacksmith.
You arrive at the address the Mapmaker told you about. It doesn't appear to be very different from other houses on the outside. The only odd thing you notice is that the chimney seems to produce an abnormally large amount of smoke.
You find the door to be open, so you walk right in. Once inside, you see that the entire first floor is one big smithy! Tools of all shapes and sizes surround the biggest anvil you've ever seen. A dwarf with an even redder face than usual looks at you grumpily.
"What can I do ya fer?"
The Dwarven Blacksmith offers two quests:
These quests are sequential. You need to finish the quest for the Longsword of True Valour before you can start on the quest for the Axe of the Covenant.
In both quests you help the Dwarf find the parts of a legendary weapons. The dwarf does not know the location of these parts, so it's not a matter of simply retrieveing the parts – you need to search for information first. And the Dwarf does not even give a clue where to start.
A reward for the quests, the dwarf reforges the legendary weapons for you. Very nice for heroes who can wield the weapons and a nice income bonus for heroes who cannot.
So far, the Dwarf is not known to be involved in any other quests.