Cut it out and fabricate a new one and weld it in. What I do is cut it out as best as I can in the area of good sheet metal all around the rust spot. Lay it on a new piece of sheet metal and trace the pattern out.
That's definitely a tough one to rebuild but take your time and sit back and think about it and drink a beer or a shot before you cut it out. Definitely a take the fender off repair from what I see.