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It's actually on the Nashkel Mines (surface) map, as part of the quest to bring the artist Prism to justice. Talk to the bounty-guy in Nashkel (looks like a merchant, standing just outside the Temple of Helm) and he'll tell you about the quest. Head south to the mines, but go around the big pit; there's a face carved into the rock and a nobby looking fop standing nearby; that's Prism. Talk to him and a (famous!) bounty hunter (that you may or may not be impersonating...) turns up to collect. Pick a fight in whatever way you prefer and take the sword from his cold, dead corpse. He doesn't use a ranged weapon, so kiting can work if you've got any kind of ranged attack (The Wand of Magic Missile you robbed from Imoen before removing her from your party will do in a pinch. You did rob her WoMM, right?). You won't find a finer blade until BGII!