I would start with 400 grit sand paper to clean it up. Than finish it with 600 or 800 wet sanding.
If you want a mirror look and you have a bench grinder you can buy a felt disc and some polishing compound. Just be really carefull it can throw the blade at you if you dont hold it tight and at the right angle.
You might be able to take the knife apart by unscrewing the back. You can change the leather discs. And it will also give you better access to clean everything up.
Try to make the sheat by yourself. You can buy all the supplies in shops like Tandy leather or maybe even Michaels.
Just pour yourself a nice glass of whiskey and get to work. Its fun!
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