Are you sure that you have at least two malachite gems in your inventory, not just malachite ore?
Try sending the gems to your battle tower, then teleport there to put them back in your inventory and return to the fjords. If there is a glitch with him recognizing that you have the gems, maybe moving them or getting the game to reload the fjords will get it working.
You don't miss any quests (or loot) by destroying the Red Hammer tribe, and at least in D2:ED that was the best way to solve that set of quests. Even if you agreed to kill Aurelius, you would not get the treasure promised by Svadilfari, and he would have turned hostile anyway.
Welcome to the forum.
