Here is a brief history of how the Lonely Mountain came to be, greatly researst by the gretest of Dwarven Geologists and Historians, compiled with information from the deepest archives of Erebor. :) If you're wondering why the text is so big, I made this on Durins Drive.
It all started with one of the many volcanoes, with the Lonely Mountain being one of the biggest outlying ones of the volcano ranges in the north, later called the Grey Mountains. By that time it was one of the biggest (later found in the Mountains great size). But the, at the end of the first age, a lone elf came, screaming in pain, holding a beautiful jewel. It was Maedhros, one of the last children of Feanör, clutching a Silmaril in his burning hands. In utter despair, he climbed up the slopes of the Lonely Mountain and jumped into the great chasm of fire and magma. Maedhros was burned to cinders instantly, but the Silmaril stayed whole. It sunk, all the way to the center of the mountain. And there it stayed.
Due to the great power of the Silmaril, the magma hardened, and yet again due to the power of the Silmaril, the stone got a strange green tinge to it. All the materials that had gone up with the magma (the molten gold, iron, etc, etc) hardened, and due to the pressure created by all that magma turning to stone, wonderful jewels formed, and many formed around the great Silmaril, making a protective shell around it. The same thing happened to the nearby Grey Mountains, but while they took longer, the Silmaril had over over it to.
The next turn was the light of the Silmaril, while hidden, still contained the essence of Yavanna, and so, combined with the natural fruitfulness of ash, made that great forests grew around the mountain, and the whole area became fruitful and beautiful. There it stayed. For most of the second age it remained undisturbed, till in the mid Third Age, when Khazad-Dum fell to the Balrog, scattering Dwarves came to the mountain, and finding it was full of mineral wealth, settled there. And that, is where they found it.
During the reign of Thrain I, the Dwarven miners stumbled across something beautiful. The heart of the mountain. The Arkenstone. The Arkenstone supplied the Dwarves of Erebor with incredible power over the other Dwarves, and rarely did any elves think, might this be a Silmaril?
Thanks for reading :)
[1] LordDainTheAwsome, King under the Mountain (send a raven!)