Council of Elrond

Balrog of Moria and Forewarned is Forearmed are in play. A company is at The Under-gates and enters the site.
What happens ? The hazard player can choose one automatic-attack and this one cannot be canceled.

Answer 1 : the Balrog automatic-attack is already canceled, so it can not be chosen
Answer 2 : the Balrog automatic-attack can not be canceled, so it can be chosen


FOREWARNED IS FOREARMED
Any non-Dragon Lair site with more than one automatic-attack is reduced to having one automatic-attack of the hazard player's choice (this attack cannot be canceled)……

THE UNDER-GATES :
……. Automatic-attacks (2): Balrog (1st attack)-2 strikes with 16 prowess (2nd attack)-Opponent may play as an automatic-attack one non-unique hazard creature from his hand normally keyed to Ruins & Lairs [R]………..If a manifestation of Balrog of Moria is in play or defeated, the first automatic attack is canceled……..

BALROG OF MORIA
Unique. The Balrog appears in Moria. The Moria site gains a second automatic-attack of 1 strike with 18 prowess and no body (i.e., 18/-). If this 2nd automatic-attack is defeated, this permanent-event is removed from play (i.e., the Balrog is defeated)…….

"If a manifestation of Balrog of Moria is in play or defeated, the first automatic attack is canceled"

does not mean that the attack i s removed. It exists.

"the (first) automatic attack is canceled" is the action that is declared when the first AA is faced.
This is an action caused by a passive condition (passive condition is just facing the first AA).

If The Under-gates is under effect of Forewarned is Forearmed, the action cannot be applied.
Similarly if Nameless Thing attacks keyed to minion Carn Dûm and Forewarned is Forearmed, the action "Any attack against a minion company at this site is canceled." cannot be applied.