need to take the headstock off and then machine away that broken section, machine it down to either the level of the shimstack (so you can reuse the same shim stack, or machine it flush with the front of the headstock and replace the shim stack after cutting the slot), replace it with a block of cast iron with 2 or 3 or 4 bolts to hold the block to the headstock where the break is now. These bolts should never be removed again: glue them in place permanently.
Then bore the hole out. since you only have half a circle of metal to cut away, probably best to do this on a milling machine with an end mill, get close to a circular hole then bore it out. Alignment isn't super critical unless you don't want to rescrape the headstock for alignment.
after boring the hole to the diameter needed, cut the slot in the front, where the single bolt is now, replace it with a shim pack the same thickness as the slot you cut, clamp down on the shim pack. then either rebore the head to the alignment you want, or just get the spindle running if you can and remove shims later to get the bearing clearance you want, and you'll need to scrape the headstock for alignment. i would imagine it should not be that difficult to get the true position of the center of the bored hole to with .001" if you have the tools. if not, you'll have to rescrape the headstock if .002" taper per 10 inches isn't good enough. anyhow, the spindle doesn't ride in the center of the bored hole, the fluid film bearing (if turning clockwise) runs in an elliptical path around the 4-5 o'clock position if i'm not drinking. (when the load is pulling the spindle directly downwards)
better to have to wedge the slot open with .001" worth of shims more than you need to fit the spindle, my guess is you'll have .0005" worn off your newly bored cast iron headstock bearing before the bearing is run in, so undersize and prying open the shim stack is better than oversize and clamping it shut.
what the hell is the purpose of those two bolts anyways? initially i figured they held bronze bearing inserts in but that does not appear to be the case.