Your wagon finally rolls into Phandalin, a new town built on the ruins of the old one. You begin by delivering Gundren’s supplies to Barthen’s Provisions, where Elmar Barthen is saddened to hear about Gundren but pays you the agreed fee. He tells you that Gundren’s brothers Nundro and Tharden are camped somewhere outside town and are expected any day now.

Next you deliver the stolen supplies to Linene Graywind at the Lionshield Coster. She thanks you and pays a reward, offering to help you any way she can. She also warns you that a band of ruffians known as the Redbrands have been extorting and bullying everyone in town for the past few months.

On Sildar’s advice everyone but Threftor heads to the Stonehill Inn to secure lodgings. He heads instead to see his aunt Quelline Alderleaf, a farmer. Her little son Carp tells him that he found a secret tunnel in the woods near the ruins of Tresendar Manor. A couple of “big ugly bandits” came out and met with some Redbrands, but they didn’t see him.

Quelline does not know the location of Cragmaw Castle but she knows someone who should – the druid Reidoth, who know every inch of the land for miles around. He recently set out for the ruins of a town called Thundertree, about fifty miles northwest.

The rest of the group spends some time at the inn buying drinks for the patrons. Nobody can tell you where Cragmaw Castle lies but your friendly manner leads you to hear many stories of local goings-on:

• Sister Garaele, who oversees the Shrine of Luck, recently left town for a few days and returned wounded and exhausted.
• Daran Edermath, the orchard keeper, is a former adventurer.
• Orc raiders have been seen on the Triboar Trail. The townmaster is looking for someone to run them off.
• Thel Dendrar, a local woodcarver, stood up the the Redbrands a week or so ago when they came by his shop and leered at his wife.  The ruffians murdered him and several townsfolk saw it happen. The Redbrands grabbed his body and now his wife, daughter and son have gone missing too.
• Qelline Alderleaf’s son Carp said he found a secret tunnel in the woods, but Redbrands almost caught him.
• The Redbrands hassle every business in town, except for the Phandalin Miner’s Exchange. They don’t want trouble with Halia Thornton, who runs it.

When Threftor returns you pay a visit to Halia Thornton, waiting til she closes shop and catching her on the way out. She interested but is wary of you and asks you to meet her clandestinely tomorrow.

Night is drawing near but you decide to visit the old adventurer Daran Edermath. He is a genial old elf who is concerned about the Redbrands and would like to see you teach them a lesson; he tells you that their main safe house lies under the ruined Tresandar Manor. He also asks a favour: he has heard stories that someone is digging in the ruins of Old Owl Well in the hills two days northeast of Phandalin and that some prospectors report being chased away from there by undead. He’d like you to find out who’s there and what they’re up to; the ruins are of an old watchtower from the ancient magical empire of Netheril, and there may be dangerous magic dormant there.

After a night’s rest you visit Halia behind the Miner’s Exchange as agreed.