I vote for oversizing the existing keyway to minimum clean up in both the axle and hub.
Then make a custom key to fit.
Do you think that was originally a tapered fit? If so, look into taking some off the inside length of the hub to allow the drum to go further on the shaft to tighten up the taper. In the picture it appears to be straight, or used to be straight. If it was originally tapered, there will be several degrees of taper. The taper you are seeing may be wear. If worn from running loose, not much you can do but get the key fitting best as possible, clean up all the rust and grease, go back with some Locktite or epoxy to try to hold it best as possible. Be sure the nut, threads, and washer are in good shape and will tighten without bottoming out, may need a thicker washer.
I would not weld on the axle. The heat could change the temper, cause it to break under load.
How is the other side? Does it need the same before it gets any worse?
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