User blog comment:Lord Loss/Monster Hunter Theory... Blog/@comment-5043481-20130202132942/@comment-6050823-20130202220859

Basically you combine it with any type of ore,bugs or bones and you get two or more of the item,you combine the Expand Pickaxe with.

My best guess for the ore and bones is,it just breaks the ore or bone into smaller pieces.

With the bugs,maybe it has some type of scent that attracts more bugs or you just need certain material from the bugs so you just cut them up.