This market loves to punish Yamana Gold (NYSE: AUY).

Sure, it's a slippery slope to ascribe human emotion to a stock exchange, but when a bargain this clear continues to languish in the shadows of a sector that's exhibiting enormous strength, rational explanations become rarer than gold.

Yamana reported a 103% increase in cash flow for the first quarter of 2010, thanks in large measure to the industry's golden standard in mining costs with an average per-ounce tally of just $161 per ounce. Incredibly, the company envisions that cost shrinking throughout the year as production rates increase at key operations. Factoring in the rising price of gold, Yamana experienced a solid 67% expansion of gross margin to average $842 per gold-equivalent ounce (GEO). Lest we forget, it wasn't so long ago that gold's spot price sat below Yamana's latest per-ounce gross margin!

Providing an alluring value comparison, both Yamana and midtier rival Agnico-Eagle Mines (NYSE: AEM) are projecting 2010 production volumes in the neighborhood of 1.1 million ounces. Agnico has experienced a near-term surge in costs associated with some challenging start-ups at newer mines like Kittila in Finland, and the miner's projected 2010 cost of $399 per ounce has slipped behind the latest reported costs from titans Barrick Gold (NYSE: ABX) and Newmont Mining (NYSE: NEM). By retaining the most attractive cost structure in the industry, even through a rapid growth spurt like the one under way, Yamana handily beats even my favorite growth stock, Agnico-Eagle, with respect to core profitability.

Between the two, Yamana holds more cash on its balance sheet, with $222 million, and its long-term debt burden stands some $231 million below Agnico's.

Both Yamana and Agnico-Eagle Mines are looking to grow sustainable annual production levels over the next few years, from just over 1 million ounces to 1.5 million ounces and 1.4 million ounces, respectively.

Both operators boast of substantial opportunities to enhance their existing high-quality ore reserves through aggressive exploration of existing gold deposits. Alongside those of larger competitor Goldcorp (NYSE: GG), I consider these three particular claims of organic growth potential extremely well-founded.

I have made no secret of my contention that Agnico-Eagle Mines represents a seriously undervalued gem within the gold patch. And yet, despite the striking similarities between their respective growth and production profiles, and Yamana's clear edge with respect to production costs, Agnico's market capitalization exceeds that of Yamana by nearly $2 billion. Now, one can argue that some of that relative discount is justifiable on the basis of Yamana's nagging issues of derivatives exposures and uncertain commitment to the best interests of shareholders, but in no way do I believe a discrepancy of that magnitude can be rationalized.

If Agnico-Eagle shares remain cheap, and I strongly believe they are, then Yamana Gold remains the ultimate bargain among the larger midtier miners.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.