Yes, even now with the water trickling out the hole the water is leaving the pond at the back of the dam (there's no real definable place where it exits but it's definitely at the bottom of the dam on the back side). I'm wondering if the pelletized bentonite would do a better job of plugging more of the leak but I'm not sure.

Like you, I'm thinking it may be better to just build a new grade farther down the draw and have a bigger pond/lake. Anyone know of any good pond contractors in the southeast TN area?