Deep within the roots of the Mountain.
Gandalf remained silent for a long while, his gaze lingering on the hatchling, Alice. He forced himself to find a shred of composure before speaking. "You raise... valid questions, Smaug. I shall have to reflect on them deeply."
"But I came tonight for our agreement. We are here. Is it not time to hand over the Arkenstone?"
Gandalf suspected Smaug had a deeper play for the gem; he was testing the dragon's resolve.
Smaug chuckled. With a fluid, almost casual motion, he withdrew the Arkenstone from his system storage and held it within his massive claw, letting its inner light shimmer in the dark. He opened his palm toward the Wizard. "This is the prize Thorin Oakenshield seeks."
"??????" Gandalf blinked, stunned. He hadn't expected it to be this easy. He didn't reach for it. "And what is the price for such a gift?"
"A small tithe," Smaug replied. "The prophecy speaks of Durin's Day. I don't know the exact date, but it draws near, does it not?"
"It does," Gandalf nodded.
"On the eve of Durin's Day, I shall hand the stone to him. Tell him to wait outside the Great Gate at sunset," Smaug stated. "But until then..."
He paused, letting the silence hang.
"Until then?" Gandalf prompted.
"It is the autumn harvest. The people of Dale are busy in the fields," Smaug said. "Let the thirteen Dwarves spend their days helping with the reaping. If they finish the harvest before Durin's Day, they can help turn the soil for the winter. Gollum shall act as their overseer. If they refuse, or if they grow lazy..."
"I will still give him the stone, but only when I feel the 'whim' to do so. Our contract did not specify a time, after all."
"..." Gandalf mentally reviewed their conversation in Rivendell. Curse it, the dragon is right. The request was simple in theory, but in practice? Forcing the Prince of the House of Durin to dig in the dirt for humans? It was a psychological masterstroke. "I shall attempt to persuade them," Gandalf sighed.
"See that you do," Smaug replied. "Anything else?"
"One thing. Is Thráin truly alive?"
"He is. And I know exactly where he is," Smaug said matter-of-factly.
Gandalf felt a fresh headache brewing. The situation was a paradox. On one hand, the King's survival was a miracle. On the other, as long as Smaug held that information, he effectively owned Thorin Oakenshield.
"You intend to use his father as leverage," Gandalf said flatly.
Smaug nodded. "You are quite observant today, Mithrandir."
"May I ask what you intend to make him do?"
"You may not," Smaug countered. "Be patient. At sunset on Durin's Day, all shall be revealed."
Gandalf returned to Dale. He found Bilbo alone in the stone house, looking small and anxious.
"Gandalf! You're back!" Bilbo cried, jumping to his feet.
"Where are the others?"
"They went out to 'make preparations,'" Bilbo said. "They split into groups. I tried to stop them, but they wouldn't listen."
Gandalf let out a dry laugh. He knew the Dwarven temperament too well to be surprised. "No matter. I bring news. We must find them before they cause a diplomatic incident."
It took an hour of searching the city. The Dwarves hadn't "caused trouble" in a violent sense, but they had managed to offend nearly every human they spoke to. Their arrogance—treating the citizens like "low-born" subjects—had already turned several potential allies into bitter critics.
Finally, the Company was reunited in the house.
"What news, Wizard?" Thorin demanded. He looked annoyed; several humans had failed to bow to him, which he found personally offensive.
Gandalf sat down and puffed his pipe. "I have seen Smaug. We spoke."
The room erupted. "You went alone?" "Why didn't he burn you?" "What did he say?"
Thorin remained silent, his eyes narrowed with a growing suspicion. "Smaug let you walk away... did you make a deal with the beast, Gandalf?"
Gandalf stopped smiling. He looked Thorin in the eye. "Yes. I have made an arrangement that requires no blood."
The younger Dwarves began to shout. "A deal with the worm?" "Treachery!" "Are you a Wizard or a turncoat?"
"SILENCE!" Thorin roared. He turned back to Gandalf. "What kind of deal?"
"On the eve of Durin's Day, Smaug will hand you the Arkenstone at the Great Gate," Gandalf said calmly.
The room went still. "Just... give it back?" Fili asked, breathless.
"There is a price. From tomorrow until Durin's Day, you must work in the fields. You must help the people of Dale with their harvest. Gollum will be your overseer. If you work well, the stone is yours."
Thorin's face turned a shade of purple that was almost impressive. "You want... ME... to labor in the mud for humans? Under the eye of that creature?"
"The Arkenstone is the price," Gandalf said. "And there is more. Smaug confirmed it: your father, Thráin, is alive. He knows where he is."
Thorin's fury turned to a cold, desperate hunger. "Where? Tell me!"
"He didn't say. It is his second 'bargaining chip.' He knows that thirteen Dwarves cannot serve his greater purposes, but a King with the Arkenstone and seven nations at his back? That King can do much for a Dragon."
Thorin went quiet. He understood. Smaug wanted to make him a "Client King."
"I will not kneel," Thorin hissed. "I will take the stone, call the armies of the Iron Hills, and force the location of my father from his throat!"
Gandalf let out a long, weary sigh. "Thorin, that is a fool's dream. I made an unexpected discovery tonight. Smaug is not alone."
"There are two dragons in the Mountain. A hatchling named Alice."
The silence that followed was absolute.
Bilbo looked like he was about to faint. Balin's face went grey. "A hatchling... Smaug is a male drake. You don't have a hatchling without a mother."
"Which means," Balin whispered, "there is likely an adult female deep in those halls. A family. A brood."
The terror in the room was palpable. Two dragons? Three? Fighting one was a suicide mission; fighting a nest was an impossibility.
"Even a hatchling grows, Thorin," Gandalf warned. "You cannot win this with axes. You must play the game. And there is one more thing you must know."
"Smaug can change his skin. Bilbo, do you remember the Raven that brought you food? That was Smaug. Thorin, do you remember the Troll that stripped you naked in the forest? That was Smaug."
The realization hit Thorin like a bolt of lightning. The humiliation, the "luck," the "miracles"—they had been puppets in a dragon's play for months.
"He has been with us the whole time..." Bilbo whispered, clutching his stomach. "He's been watching us... laughing at us."
Gandalf nodded. "So, Thorin. Tomorrow morning. The fields are waiting. Do we work, or do we walk home?"