Heat the Ingots and put them on the anvil. Hold down 'Z' while looking at the Anvil and select 'Blades' from the radial menu. Hit the heated ingots until they turn into a Sword. While it is still heated, hold 'Shift' and click the left mouse button on the dagger to give it a quality boost. If you switch the design of your blade you will need to redo the quality. Dip the blade in the oil and bring it to the workbench to connect to the guard and grip.