With all cards in play:
Sacrifice Murderous Redcap with Skirk Prospector to add one red mana
Murderous Redcap's ability will trigger, returning it to play with a -1/-1 counter.
Grumgully's ability will trigger, adding a +1/+1 counter to Murderous Redcap
+1/+1 and -1/-1 counters nullify each other
Murderous Redcap's ability will trigger, dealing 2 damage to the opponent.