Exit Silversky from the west gate and follow the trail North.

On the second crossroad, head west. Follow the trail to a dead end. There you will find the Mini-Boss Eye-Patched Quadros.

Kill him and pray that he drops a Rhodar's Hammer (he doesn't do so always but you have a good chance that he does).

Take the hammer to Rhodar Heatforge (he is the weapons trader in Silversky, east from the palace entrance) and say Hammer.

You will be rewarded with 8.000 Experience Points, 3.500 Gold Pieces.