I've not seen that previously. Wondering if it could have been full of water and frozen? Water can get into the stay via a vent hole in the seat tube, but I think the lower end of the stay is water tight.
What are you going to do with it? I suppose you could ride as is and keep an eye on the damaged area. I might try making a patch out of 6061 and bonded with epoxy.
The problem with welding is that it would soften the weld area/heat affected zone of the tube. Guessing that it wouldn't be a problem on the seat stay though.