Talk to Henk in Palon Vertas [120,302] to start the quest.
His axe is missing, so look around for it. Looking at the grass at [93,281] will give you a clue... At this point you must have started the Shayna's Borrowed Books quest and talked to at least Shayna and Morton in Palon Vertas.
Follow the path to the town and talk to Brittani at the village's north gate.
Brittani will tell you to talk to the Mayor, Morton.
Morton tells you that you should go south to a blacksmith, Heavybeard in Zirakinbar.
Asking Heavybeard in Zirakinbar [28,179] if he has had any problems with thieves, he will tell you to talk to Seth, a guard in Sedicolis [49,69].
Seth will send you to Nordcarn to talk to Buni at [6,29].
Buni will tell you to go to Port Anitora and talk to Osold at [252,184].
Osold will send you to find a specific spell in a book in Palon Vertas magic school.
The spellbook is located in the Auditorium, it is a yellow book under a black book on the desk in front of the blackboard. Look at it. DO NOT use it.
Next you need to go to Nordcarn magic shop at [108,81] and talk to Atekel. You might have to have finished Lasud's past quest before Atekel will talk to you about this quest.
Atekel will tell you to harvest a special cactus at [262,259] in Tahraji Desert around 1:20-1:40 EL time.
After harvesting the cactus, you will need to return to Atekel.
She will tell you to use with an Enriched Water Essence at the book in Palon Vertas magic school auditorium. (You will lose it.)
When you have copied the spell, go back to Osold in Port Anitora.
Return to Palon Vertas, look at the pile of logs near Henk at [104,309] and after getting the hint use with your Iron Axe or Steel Axe at it to free Henk's axe.
Iron axe will disappear if you use it at the logs, but at the moment Steel axe does not seem to disappear. Might be a bug though.
