If you're going to rebuild this engine, I strongly suggest you bring it to a reputable machine shop that will magnaflux the engine block and cylinder head. These blocks can also exhibit cracks in the main bearing caps or webs from heavy use, bearing failure, bolt stresses or improper handling of the block. The older engines such as yours that may have been operated without antifreeze can also rust out between the bottom of the water jacket and the crankcase.

Preaching the Hot Rod Gospel according to the 4-stroke apostles:

Suck, Squish, Fire and Fumes