The Dwarven battleaxe with sapphires is an item used during The Giant Dwarf. It can be obtained by talking to Santiri, a Dwarf who lives in Keldagrim near the bank. Initially in a poor state of repair, the player first must use three sapphires to repair the hilt, and then take it to Thurgo south of Port Sarim to have it sharpened.
Once fully repaired, the battleaxe can be delivered to Riki the sculptor's model as part of the attire required to complete the new Giant Dwarf statue.
The player may not equip the battleaxe despite a "wield" option. If they attempt to do so before repair, they receive, "I should be very careful with this battleaxe, it's almost a museum piece! I don't want to damage it by wielding it." Once restored, the avatar replies, "I went through all this trouble to restore this axe, I'm not going to ruin it now by wielding it and accidentally smashing it to pieces. I'd better take it to the sculptor."