HSP Baja 2wd restoration log

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While waiting on parts we changed the clutch. When we flipped the engine around something started to stream out of the exhaust, water is my guess, mixed with some gas and oil.
The bearings are done but the rest of the parts look ok with on exception, the score in the cylinder, last picture.

So what to do about this scratch, can I just pretend like its raining, throw in new bearings and put it together again?
how deep is the scratch?, and yeah, id give it a chance, bearings are cheap
 
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