I found this item recently, working on my iksar SK's Test of the Zealot. After I spoke with the iksar knight at the gates of Cabilis in Warsliks Wood, he walked away and started marching through the forest. Finally, he came to an area (~loc -2007, 1720, 202) and stood for a bit, before emoting:
an Iksar knight sats 'Dig, dig, dig... It's gotta be here!'
an iksar knight pulls out a glowing dagger. 'Ha ha! This must be it! Ha ha! Hey, thanks for the escort. There's a broken rusted one here for you. Ain't I generous? Thanks for the escort, now go your own way!'
With that, he sprinted off, and left a groundspawn where he had been standing, a standard pouch graphic that turned out to be this item. Now, to find out how it is used...
~Loreseeker Jevax of Bristlebane