3.0l case issue
 

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I'm rebuilding a 3.0l engine. When cleaning the right-side case I noticed a steel sleeve running down from where the thermostat goes in. My concern is that it looks like the case was drilled oversize to accommodate the sleeve. In two places the aluminum is gone and the steel is visible from outside the case and inside the bell housing. Also, there is an indent in the outside of the case where the steel is showing. Why does this indent exist?
The engine didn't leak from these areas before being torn down for a bad piston but I can't believe the Factory would have done this repair. I realize a lot could have happened since 1979 when the engine was new.
Any ideas?

I'm not sure how it was modified but I wouldn't worry about it. No leaks = GOOD TO GO.

You could use some JB weld to fill in the area on the outside as indicated (3rd photo) if it will makes you feel better.
JB Weld is an excellent alternative for replacing the grey stuff applied at the factory.

Thanks. That's encouraging. I still don't understand why the thin area is there at all.

they're all like that. don't worry about it. jb weld the outside for any potential seepage.