Location: Shadow Mithril Mines, from where you go down just after the entrance go n, e, 2xse, 2xe, 3xne, 3xn, e, waterfall, up, s, 4xup, e, search rags and you will find a rosary, then go up once more and give the hermit the rosary.
Reward: You should receive item Emerald Medallion as reward although at this stage you cannot wear it, you need it I believe to help resist the effects of the Gremlin Confusion (Quest 138 - Gremlin Spirit).