Talk to Sergeant Henear to learn of the strange, burning weapons he's seen the Kobolds using rather effectively against the Undead.
Get the secret of the Kobold's fireamrs!
Stop! Don't you know there are myriads of undead lurking on the other side of this bridge! They are different from the Kobolds, not as chaotic and cowardly. A patrol just reported a large group of them marching through the lands in units of three, but they seem to be sensitive to fire. I saw a group of Kobolds carrying firearms a few days ago. It's unbelievable how fast those little pests defeated the undead. I think they are somewhere in a cave to the west. If you could worm the secret out of them, I’d be very grateful.
Follow the road north from the Sergeant, west through Twainbrook and over the river. On the other side of the bridge follow the small track that branches north until you reach a mill with a nearby wine cellar.
The quest updates to indicate you should go into the cellar. It's worth equipping a fire-damage weapon if you have one, and any poison armour you have. You will need to fight some Undead, so a Potion of Undead Death may also come in handy. When you're ready, go down into the cellar and defeat the 3 Undead Legionnaires that are attacking a Kobold. Watch out for the Spiders that are also down there. Talk to the Kobold and it will drop a Chunk of Lava.
Ah you saved me. Here take this, it makes weapons burn! All you need to do is find an able blacksmith. Now leave or else I'll kill you!
Although you seem to have a choice between letting Itzibi live or die, if you choose to let him live you receive the following message as you approach the cellar exit.
I bet the little traitor of a Kobold will try stabbing me in the back! Just watch!
Itzibi will then be hostile, although depending on the difference between his level and your level, he may just wander around without attacking you, so you can still leave without killing him.
If you chose to kill Itzibi you can leave the wine cellar without any messages.
Return to Sergeant Henear for your reward.
What? All they used were lava rocks? That's nothing special and definitely not a novelty. Never mind, it should be enough for you. Go see the blacksmith, he'll be able to connect your weapon with the lava rock.
Here take this as a reward for freeing us of that nuisance. Leave me alone, I have to go on my watch.