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As TJ noted, most likely it has "burned a valve" and the head needs to be removed and the valve replaced.
Some additional work may be required, but it doesn't sound like the engine is junk to me - just needs a "valve job".
Depending on a few things, a replacement engine may run in the range of $250 to $500. We sold a good one a while ago for $200 IIRC. It's not something you want to ship.
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