1960's fireplace
We are updating the entire house. We are going with a traditional look, but feel like this wall looks dated. We have already removed carpet and will put new hardwood floors. We have also removed the wood paneling. Any thoughts??

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OK - I'm confused.
Your statement of "going with a traditional look" but yet you purchased a mid-century modern home?
I don't get it - why did you purchase this home if your going to change everything about it to reflect your traditional aesthetic?
Post updated photos of what you have done to date please - then I can answer more productively.
If you are really going transitional, or traditional, then you might like to try a warm masonry camel stain on the stone. I would do that before I considered refacing. I can't see enough of your home to say it is mid-century, this stone profile was used long before the mid-century but became popular about then. It is real stone and a classic profile. Masonry stains are very very good, and with proper application would bring this up to the warm carmel that would give you a very traditional look. Talk to a mason and a specialist who does masonry stains.
There are sealants out there that can give the stone a smooth texture and give it a constant "wet" appearance. This might help bring out the color and make it less drab
I'm surprised a decorator would suggest covering the wall with sheet rock. It sounds like their views might not line up with yours. Done correctly, the fireplace could really bring the room together.
Then, a classic low chest put on the left wall there can hold the needed components. Don't hesitate to drill through / into stone / add outlet to hang it there - lay it out on paper elevation wise so you can see how it will appear. The midpoint of the television will be around top of firebox / below mantle height for it to be eye level as seated.
You can add a wood mantle with traditional corbels boxed around to use the old stone mantle as its anchor. You may want to shop for an antique gate or carved wood art element for the stone area to the right of the firebox to balance the tv visually.