Is called Bonedust, and can be found in the second level of the Rockhammer mine, accessible after turning in the quest to both Logi (scorpions) and Morwen (Roaches). Be careful in the second level though, as it's quite dangerous for lower levels. You shouldn't have a problem if you're already at the point in which you have found 3 or 4 other named weapons though.
Check out my walkthroughs:
Character: here
Book I: here Book II: here Fathamurk: here Book III: here
SpottedShroom wrote:There's evil and then there's just being contrary to your own best interests