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Note that circle does not indicate the position of the chest. Standing at the location circled in red, face the direction of the icon and you will see the hill the chest is on. The chest is under a mound about 10 steps up if you climb from the right side.
I found the mud here.
https://www.dropbox.com/s/u2uc3yjn057w42g/khenarthi_s-roost-treasure-map-iii_location.jpg