We take Libar's dagger (doesn't it have a penalty for this weapon? Or does it require a one-handed skill?).
Then, we get a heavy Illian armor from Rufur for Ilkesedar (the skill allows it, right?).
Then, we head to the gathering point. Before that, we can also stash the old Ilkesedar armor somewhere, in the same forge, if they accept it.
Damage: 20
-18 gold
Heavy Illian armor
-2520 gold