You will find an area near the east edge of the map with 3 (maybe 4) covered carts. The carts are surrounded by a wooden fence. Place the explosives on the ground in the center of the carts and you will have a brief cut-scene.
Best not to use the underground mineshaft entrance. Just slowly fight your way through the camp and rack up the exp. If you are playing a warrior it will be tough, if you are playing a Mage it is much easier.
