It may have been from a poor mould building process, though when like this, the casting are often (not always) porous. It's 'odd' that should it be casting sands, it's confined to the cooling jacket.
I'd actually say it's more likely foreign material introduced to the cooling system when water and coolant has been added over the years, not unusual. What ever it is, it's not Iron Oxide, nor Aluminum alloy.
Here's a block I did with Acetic Acid a couple of weeks back
Before;-
After;-
and the head (I didn't get any before shots, but it wasn't as bad as the block)
