Axe of Stone is in the Dwarven Halls, SW area = mine entrance. Look for the cave in there: entrance to 2nd lvl.
Kiya

http://www.kiya1.via.t-online.de/images/Div_mine2.jpg.html

map for the 1st lvl - the next pic shows the 2nd lvl then. If you don't have Gregor's password: kill the sentry gives more XP