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It looks to me like the exhaust valve seat come loose in the head casting... so the previous owner staked it down with a flat-bladed screwdriver and hammer... so he/she could sell the bike for more than its worth. It could also be a screw that come loose and got ingested... but thats a long shot with gazillion:1 odds, cause I see where the flat-blade staking job dinged the valve seat inline with a stake. The person who did it was careless.

Regardless of what happened its a heavy oil burner and needs a complete top end rebuild, minimum. Good news is, you may be able to rebuild it for $600 or so...? Hope so, those old 300s may be the best bike Honda ever made... :)
 

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Retro , I am usually with you 100% , but this time I am going out on the limb to say that is not a stake mark , they are two smaller marks also and no rhythm to the spacings of the mark , you would think if staking was the purpose of the marks , the stake would have used a pattern of a triangle or square ---------- I would guess the engine had a stretched out timing chain at one time , maybe the electrode broke off the spark plug , or it could have happen when the head was dropped or stored in a box when the engine was previous part ---- CSI New Orleans
 

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I'd tap that material back to the wall with a flatblade and dremel it so the valve seats. The hole is irrelevant if the valve seats. You'd end up with a tiny crack instead of a huge gap.
 

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I think it was a foreign object that bounced around causing those dings. Don't worry about that. You could polish them out tho. I agree with Retro that the engine is worn out. I'd do a complete check and overhaul of the top end. You can ask us for details about that later when you have specific questions.
 
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