Tarom has one final errand for you - one very dear to his heart. Ask him about errands, and then Blood Mage. He will have this to say:
"Since the Simulacrum, Shalath Abkala and her army of dead have tormented the people of Firewatch. For a time, in those dark days, I took charge of the city, but I could not retake the dead. Many hundreds of the corpses of our Legionnaries were stolen. I need you take the Rod of Divine Light, go to her, and destroy her, %PCName -- if you feel that you are able."
Prepare yourself for extensive combat before setting out from Firewatch. Mount Sarrunabi lies close by, to the north of the city. To enter Shalath's den, exit the southern gate of the city and follow the road, taking the first fork to the left. You will find yourself opposite the entrance to the Mount Sarrunabi Cavern - an extensive subterranean landscape. Once inside, you'll quickly reach a fork in the passageway. Either route will take you to the central chamber. An Invisibility potion or spell will allow you to bypass the bulk of the fighting, as Shalath has amassed quite the army of former legionaries.
Kill Shalath in the central chamber - she is not entirely immune to silence spells, and has no weapons otherwise. Then return to Tarom and ask about the topic Blood Mage to complete the quest and receive a sizable reputation boost.