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The compass is an item that when used will have a large compass interface appear and point you in the direction of a side mission if one is available. If there is no mission in the area, nothing will happen. To use the compass, you must select it and then hit the little hand icon at the top left of your bag.

Can be created as a level 4 recipe on the crafting table.

Finding a compass is somewhat rare. If you need one to learn the recipe, you can buy one from Lakeview for some reputation. Or you can buy one from another player who has the recipe.