According to a note that you discovered, the members of Gronu's hunting-party may still be alive and held in a secret cave beneath a waterfall.
'It appears as if the Draig-lûth did not slay my companions after all. According to this note, they hold their prisoners in a dungeon behind a waterfall. This gives me hope that my friends and kinsmen yet live.
'Perhaps you could locate this cavern and release any captives that might be held there. I fear for their fate if they cannot be rescued.
'The note tells that the cavern may be found behind a waterfall east of here, the second one you will find, I believe.'
The dungeon is behind the second waterfall, east of Gronu's camp.
Gronu has asked you to find the dungeon where the Draig-lûth hold their prisoners and free his companions.
Gronu is at his camp, west of the waterfall.
You should return to Gronu and let him know that all of the captives that could be found have been freed.