Any ideas on what caused this hole?

Make sure to remove advancer and re-build it with some high temp grease then use a timing light to make sure full advance is correct on both sets of points
 
Check you exhaust valve clearance, if it couldn't seat from being to tight, there would be some unburned fuel in the combustion chamber that was still burning. This would ignite the fuel prematurely from the red hot exhaust valve. Just a thought and easy to check.
 
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