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Did it look like the powerhead had been apart before? Perhaps someone has been inside, attempted to bore, or perhaps over honed that cylinder in an effort to get rid of scuffs and scores. It is usually pretty easy to tell if someone has had the powerhead apart, paint off the crankcase screws, unpainted sealer oozing out between crankcase halves. I would carefully measure the cylinder bores, piston skirts, and check ring end gaps using the old rings.
You mention that the pistons were not scuffed, and the cylinder walls were clean with no aluminum transfer of scoring. You said that you surfaced the head, but it has a slight wobble, that is no good. You must make sure that the cylinder head is perfectly flat. Perhaps the block is not true/flat as well, but it is much harder to try to true up that surface because you have the steel cylinder sleeve to deal with. Excessive sanding on the block will just grind away the aluminum leaving the steel sleeves relatively untouched.
I suppose it is possible that the aluminum in the head is cracked or damaged somehow allowing the compression to leak out, but not real likely. What did the head gasket look like, you can usually see burn thru marks if it has failed. Did it look like the head gasket had been replaced before??
I know I have mentioned alot of things, but you really need to find the cause of compression loss before just putting the engine back together. I just don’t want you to spend alot of money on rings/gaskets, and then still have low compression after reassembly.
I guess I should have led with questioning the compression gage. That lower plug hole is buried down inside the pan on those engines, making it a little more difficult to thread the compression gage in there properly. Are the plug threads OK in the cylinder head? Perhaps the gage wasn’t threading completely/properly into the plug hole.