Magical Race or Species?: Yes
Every now and then, a child is born (or found in the stone) to the dwarrow, which has what the dwarrow call “the flame,” an innate, inborn spark of raw arcane power. This innate talent is rooted in the dwarves’ connection to the deeps of the world, and the deep stone and the talent show changes or deformities if born into a “surface” dwarf. The talent manifests in the dwarrow’s abilities to link their minds to a material they work with and let that power flow into their work, creating items of arcane strength. The process is draining, dangerous, and sometimes addictive, yet there is no dwarven crafter worthy of the name who would give up the precious spark if he was born with it.
A very tiny percentage of dwarrow born with the spark become Geomants. They cannot use active magic in the sense of spellcasting, but their magic tends to shape Stone and Earth. They can grow crystals from stone, give entire stone formations arcane traits, and other secretive things, that are barely understood by dwarrow and a mystery to outsiders. They also tend to the lava irrigation and heating systems, as they can shape the lava-streams. There are rumors, stories of dwarrow Geomants in battle, which created fierce giants from stone to attack the enemy.
The time of the Geomantic circles of old and the miracles they worked has passed; no dwarrow can use active magic. Yet… some seek to unlock what was lost, to reopen the path that was closed. They work in secret, living in the shadows, for the Kings do not look kindly on those who try to break the ancient boundaries, and trouble has come out of their doings before.
As many dwarrow crafters are not arcane or only very weak in the arcane powers, they carve the runes and patterns into their workpieces, which then are filled with magic by a human arcane talent. Many humans who come from Aquitaine as children are taught to channel their powers in that way by the Geomants, and earn a very good living by making their talent available to crafters.
If a human arcane talent and a reasonably talented crafter find the trust in themselves to link their minds deeply, the crafter can forge the pure arcane flow from the human mage directly into his work-piece. Such things are rare, powerful, and in case of power-wrought blades, the strongest weapon against the shadow. Such crafter teams are very rare and highly respected; their works are extremely pricey.
Dwarrow cannot cast spells, or use active magic, they can only channel magic into materials.
Many a dwarrow will grumble about “lizard work” when referring to magic, meaning direct cast-magic or ritual magic, which they both view as slightly weird, “normal” magic is crafting magic, making arcane things, not lobbing balls of fire around or making honest dwarves float in the air! Outside of that, dwarrow have no prejudice against magic. It is a craft, like their crafts, in a way, it has masters and students and failures. It can be dangerous, and no self-respecting dwarf would ever go and dance around trees at night, chanting magic songs at the moon, but overall, dwarves judge what is done with magic, not that it is done by magic. This stance stems strongly from the fact that dwarrow do not feel helpless against magic, they know they can defend themselves, be it through weapons or artifacts. And only someone outright crazy would try to manipulate a dwarrow’s mind, for there is only one response to that: destructive rage.