This bomb is not very useful in combat. Detonating it would kill both you and the enemy. It can be used as a mining method, detonating deep into a mine.
The bomb may be obtained from the Volcano as a drop from the Fire Golem. It is classified as a common drop, though on average you will receive one every 2-5 drops.
When interacted with, there will be a button that will ask you to detonate the bomb. It can may detonated in the inventory to obtain various kinds of loot, such as Copper Ore 
, Silver Ore 
, Gold Ore 
, Promethium Ore 
, Promethium Bars 
and etc.
Detonating the Bomb will also yield the player 5 000 Mining XP.