The bucket, which he estimated was about 10 litres in size, was half-buried in dirt behind where some containers had been moved.
He got out of the digger to have a look, lifted the lid and saw plastic bags almost filling the bucket.
''There was nothing on the bucket or the plastic to say what it was, but when I opened up one of the bags, a label said `Danger Explosives','' he said.
He rapidly retreated to the office to call police.
''It didn't worry me,'' he coolly told the Otago Daily Times about his find.
But after thinking about it a bit more, he added: ''It could have been a bit scary if I had run over it, though. I don't know what would have happened then.''
Senior Sergeant Jason McCoy said the ''explosive substance'' was not in good condition.
Police left it where it was, cordoned the area off and started the evacuation.
Later, the cordon was moved closer to the scrapyard and some businesses allowed to return.
The army unit said the explosive could have been gelignite, but had deteriorated to such an extent it could not be sure.
It was made safe, then moved to the unit's van and, escorted by a police car, taken to a disused quarry at the end of McEneany Rd, where it was blown up in two separate lots.
- See more at: http://www.odt.co.nz/regions/north-otago/341094/explosive-find-digger-driver#sthash.bAKuEKCX.dpuf