just ran into this issue myself. i have two mithril in my possession and never purchased the Daggers from him. for whatever reason, it acts as though you never unlocked the forging.
Edit- little thing semi-related, when speaking to the smith in Huyuchi village for the first time regarding mithril, he mistakenly refers to Eastwall's smith as his "brother", his brother obviously being Mao's dad and NOT the smithy.