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I have about a 12" gap between the top of my new entry door and the door opening because the house is 100 y.o. and back then they used bigger doors or simply higher transoms. When I ordered the current door from HD, it was not possible to get a custom height or transom.

So I framed a 36x12 box above the door to fill the gap. I plan to close it with a 1/2" plywood piece and then put some wire mesh over it and stucco.

Q1: Will this work? I have never done stucco/mortar over wood or wire mesh.
Q2: If it does work, will the stucco protect the plywood substrate from moisture decay?

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up vote 1 down vote accepted

Sounds like a good idea. You will need to put a layer of roofing felt over the plywood, as stucco will absorb water. You will also need to attach the mesh with galvanized nails or lath screws so they don't corrode. There are two kinds of stucco: base coat and finish. For small jobs like this, you can probably get away with using just two layers of base coat. There are plenty resources out there on how to apply the stucco.

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It is conventional that the wire that comes for use by stucco is backed by a special paper that prevents the stucco from contacting to the underlying wood or plywood. The wire should also be installed with special nails that have a pair of spacer washers (the ones I've used had fiberboard washers) on the nails. These are designed to hold the wire a certain distance up off the backer board so that the stucco can be troweled around the wire. The nails are installed with the wire captured between the two fiber washers.

In the past I have purchased the wire and special backer paper together on the same roll.

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