The chisel gives a 2% chance of giving you an extra gem of the type you were cutting, but it only applies to sapphire, emerald, ruby, diamond and dragonstone. The chisel will consume 3.57% charge or 1.78% while in Prifdinnas per gem created, so it will create 28 or 56 gems before reverting back to a crystal tool seed. If there is no room in your inventory for the extra gem, it will be sent to your bank. The tool seed can be recharged by Ilfeen, Eluned, Islwyn or Rhodri Dail for a cost that starts at 7,500 coins but decreases by 1,500 every enchant, to a minimum of 1,500 coins.
Enchantment
Cost for re-enchantment
First
7,500
Second
6,000
Third
4,500
Fourth
3,000
Fifth and thereafter
1,500
You can also talk to Ilfeen, Eluned or Rhodri Dail if you want to turn your chisel back into a seed.