Lair of the Balrog

Deep at the bottom of Moria, where the dwarves mined too deep in their greed for mithril, is the lair of the Balrog that came to be known as Durin's Bane. The lair is near a deep, underground lake into which Gandalf and the Balrog fell from the Bridge of Khazad-dum during their epic battle.

Centuries after Gandalf the Grey had defeated Durin's Bane, the heroes find the lair occupied temporarily by Telchar, chief engineer of the Gonhirrim. He is using it as a camp to draw in various monsters to test his explosives. The heroes ruin his latest test against the perfect test creature, a hydra.

Telchar shows them treasures left by the Balrog, probably from others it had killed in times past. The heroes, now with their first enchanted items from a bygone age, leave the lair for the surface.