I had a cylinder in a 360 block that looked like yours, but couldn't see the problem. I ended up putting some water in the block and took a propane torch to the rust area and low and behold it started blowing steam as there was a pinhole in the cylinder wall Something like this is what I would do first. If that didn't show anything, then I'd try something a little more complex like the pictures w/ the copper worm.
CHIP
'70 hemicuda, 575" Hemi, 727, Dana 60
'69 road runner, 440-6, 18 spline 4 speed, Dana 60
'71 Demon, 340, low gear 904, 8.75
'73 Chrysler New Yorker, 440, 727, 8.75
'90 Chevy 454SS Silverado, 476" BBC, TH400, 14 bolt
'06 GMC 2500HD LBZ Duramax
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