Nice one, yes. The transformation is achieved by a series of Payne rearrangements (painful... see what I did there?).
The last epimerisation was not proposed to proceed by intermolecular epoxide opening, but by a similar lactone hydrolysis pathway. As you are so close I will post the solution below.
Reference:
Lundt, I.; Madsen, R. Top. Curr. Chem., 2001, 215, 177-191From diepoxide
1 (you gave the mechanism for its formation so I won't repeat it), lactone hydrolysis followed by Payne rearrangement gives
trans-epoxide
2, which is favoured over
cis-epoxide
3.
Epoxide
3 then closes in a favoured 5-exo-tex fashion to give
5. In accordance with Baldwin's rules, a 6-endo-tet ring closure, which would give
4, is not observed.
Hydrolysis and Payne rearrangement of lactone
5 produces an equilibrium mixture of two
trans-epoxides
6 and
7. However, intramolecular epoxide opening of
6 to give
8 is not observed as it would proceed by an unfavourable 5-endo-tet (the 4-exo-tet possibility is not shown). On the other hand,
7 could lactonise by a disfavoured 6-endo-tet (not shown) or a favoured 5-exo-tet, with the latter favourable process giving L-gluconolactone
9.
9 is hydrolysed in base - which is irreversible in base - giving carboxylate
10, in a thermodynamic sink.
Acidification of
10 finally allows acid catalysed lactonisation, giving L-gluconolactone
9, which I think is all rather astonishing.