Yup, clean it up, put a new edge on it and re-handle it.
J/K I would start hand sanding and see how much of the rust you can get off. I hear soaking in molasses and water loosens the rust. The I would take the handle to a belt sander to remove the tops of the rivets and then take off the scales. Next I would pick a rocking piece of wood from Burl Source, make sure the tang and the scales are flat, then the attach the scales. Shape it and then work on the edge.
Looks like a pretty cool winter project. That vintage 1095 carbon takes a nice edge adn is very durable...I don't see any reason why the knife won't provide years more service.
All you need is an assortment pack of 3m wet/dry sandpaper, your stones, and some mineral oil.
Scrub it clean.
Lay the roughest paper on a flat surface and grind down the handle flush with the rivets, which will get a nice shiny(but scratchy) new finish. Sandpaper the handle until everything is smooth, then sandpaper out the scratches.
Refinish the blade with the sandpaper. Start with the coarsest, stop at 800, single direction strokes, with a little oil and it'll look great.
Polish the handle with the fine sandpaper until it's buffed(somewhat...this isn't stablized burl, after all), spritz with water, let it air dry, buff it again. oil the handle, let it dry, oil it again.
Grind in a new edge, sharpen it up.
BAM. Nothing involved but time and care. I love doing these.
to any other set of people on earth, this is garbage. kinda funny...
anyway, ever since i have done work on restoring a yanagi for my wifes boss, i have had the itch to repair something in a big way. unfortunately i will have the pleasure of fixing some damage i did to a moritaka cleaver that belongs to a friend and fellow member. the thing is, i want to do some full restorations on something someone thought was ruined forever. the looks, praise, and sense of self-accomplishment you get from that is a very rare feeling.