When you meet the blacksmith for the first time, you can choose the following dialogue:
Speak to the blacksmith
Can't be blacksmithin' without me tools... good for nothin' pirates... er... oh! Hello, I didn't see you there. What can I do for you?
Ask about services
Aye, I do have some services I can provide. Unfortunately me tools were stolen by some thievin' pirates looking to score some loot. Most of what I make is made using obsidian, which requires a special pickaxe of mine to obtain.
So at the moment, I'm a bit limited at what I can do.
Offer to get tools
You want to go deal with those thievin' pirates and get me tools back? Aye, well I won't stop ya. I do have some idea of their whereabouts. I'll give ya a map that should lead you to em. Oh, and the tools are probably locked up in a chest or being carried around by one of their leaders. I have a spare key if you need it. Maybe check their camps for their Captain or treasure chests.
If you bring me tools back I'll give ya my pickaxe so you can gather some obsidian for me. Then maybe I can start making you some good gear.
Ah, you find my tools did ya? Very good, very good... Well, I suppose I can be smithin' stuff for ya now. Here's that pickaxe I promised you. With it you'll be able to mine obsidian. Bring me any obsidian you find and I will make you some tough gear out of it.
Use this pickaxe on any rocks with minerals and you'll occasionally mine some obsidian. Bring that obsidian to me and I can make you some fine gear...